Page 99 - PM Integrated Workbook 2018-19

Planning with limiting factors

Example 1

A company produces three products, and is reviewing the production and
sales budgets for the next accounting period. The following information is
available for the three products:
Product P Product Q Product R

$ $ $
Selling price 600 300 100

Labour ($20 per hour) (300) (160) (40)
Other variable costs (90) (68) (14)

––––– ––––– –––––

Total variable costs (390) (228) (54)
––––– ––––– –––––

Contribution per unit 210 72 46
Maximum demand (units) 200 600 1,000

Labour hours are strictly limited to 7,800 hours in total.

Calculate the optimum product mix and the maximum contribution.

Product P Product Q Product R

Contribution per unit $210 $72 $46
Hours per unit 15 8 2

Contribution per hour $14 $9 $23
Rank 2nd 3rd 1st

Units Hours per Total hours Contribution Total
unit per hour contribution

R 1,000 2 2,000 $23 $46,000

P 200 15 3,000 $14 $42,000
Q 350 8 2,800 $9 $25,200

7,800 $113,200

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