Page 90 - Microsoft Word - 00 Prelims.docx
P. 90
Chapter 4
Step 1: identify the scarce resource (this may be done for you in exam
questions.
At potential sales level:
Sales potential Total machine Total labour
units hours hours
Product A 4,000 40,000 4,800
Product B 6,000 72,000 4,800
Product C 6,000 84,000 2,400
196,000 12,000
Therefore, labour hours are the limiting factor.
Step 2: calculated the contribution per unit for each product (this has been
done for us in this question).
Step 3: calculate the contribution per unit of the scarce resource for each
product, i.e. per labour hour.
Product A: $6/1.2 = $5.00
Product B $5/0.8 = $6.25
Product C $4/0.4 = $10.00
Step 4: Rank the products in order of the contribution per unit of the scarce
resource. Thus, production should be concentrated first on C, up to the
maximum available sales, then B, and finally A.
However, a minimum of 1,000 units of A must be produced.
84
