Question 5 (b)
Choosing the most profitable sales mix of two products
6 marks
- Time to write
- About 12 minutes
Question
Question 5 (b) · 6 marksDev Ltd engaged in manufacturing two products, namely 'A' and 'B'
| A | B | |
|---|---|---|
| Selling price per unit | 64 | 100 |
| Direct material per unit | 22 | 24 |
| Direct wages per unit | 12 | 15 |
| Variable overheads | Equal to 100% of Direct wages | Equal to 100% of Direct wages |
| Fixed overhead | Rs. 12,000 p.a | Rs. 12,000 p.a |
| Capacity (maximum) | 1,000 Units | 1,000 Units |
Recommend the sales mix, from these, that should be adopted:
A 300 units & B 600 units
A 450 units & B 450 units
A 600 units & B 300 units
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(iii)3 items, each marked on its own: give each its share.
- RecommendEnd with a one-line decision that follows from your figures.
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Contribution per unit 2 marks 4 min
- 2 Profit under each mix 3 marks 5 min
- 3 Recommendation 1 mark 1 min
- Check: arithmetic, units (₹, %), final answer underlined 1 min
Short on time? End with step 3's one-line decision, whatever happens: never leave the figures without it.
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Fixed overhead (₹12,000 for each product, ₹24,000 in all) does not change with the mix, so the mixes are compared by total contribution.
| Particulars (₹ per unit) | A | B |
|---|---|---|
| Selling price (A) | 64 | 100 |
| Direct material | 22 | 24 |
| Direct wages | 12 | 15 |
| Variable overheads (100% of direct wages) | 12 | 15 |
| Variable cost (B) | 46 | 54 |
| Contribution per unit (A − B) | 18 | 46 |
| Particulars | (i) 300 A + 600 B (₹) | (ii) 450 A + 450 B (₹) | (iii) 600 A + 300 B (₹) |
|---|---|---|---|
| Contribution from A at ₹18 | 5,400 | 8,100 | 10,800 |
| Contribution from B at ₹46 | 27,600 | 20,700 | 13,800 |
| Total contribution | 33,000 | 28,800 | 24,600 |
| Less: Fixed overhead (₹12,000 + ₹12,000) | 24,000 | 24,000 | 24,000 |
| Profit | 9,000 | 4,800 | 600 |
All three mixes are within the maximum capacity of 1,000 units of each product.
Mix (i), 300 units of A and 600 units of B, should be adopted: it gives the highest profit of ₹9,000. Product B earns ₹46 of contribution a unit against ₹18 for A, so the mix with more of B is the most profitable.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Contribution per unit | 2 |
| 2 | Profit under each mix | 3 |
| 3 | Recommendation | 1 |
| Total | 6 |
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