Booklet 8 Profit Maximisation Solutions.xlsx - Ex3.42

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Profit Maximisation - Exercise 3.42 Unnamed: 1 Unnamed: 2 Unnamed: 3 Unnamed: 4 SOLUTION Unnamed: 6
Factor 5 Factor 6 Factor 7 Total
(a) (i) Contribution per Machine Hour
Selling Price 70 100 130
Less Variable Costs 54 68 106
Contribution per Unit 16 32 24
Machine Hours 2 8 4
Contribution per Machine Hour 8 4 6
(a) (ii) Total Contribution and Total Profit
Contribution per Unit 16 32 24
Sales (units) 4000 2000 6000
Total Contribution 64000 64000 144000 272000
Less Fixed Costs 150000
Profit 122000
(b) (i) Total Machine Hours Used in Year 1
Sales (units) 4000 2000 6000
Machine Hours 2 8 4
8000 16000 24000 48000
hours
(b) (ii) Full Capacity
48000 hours / 75 x 100 = 64000
hours
(b) (iii) Order of Priority 1 3 2
(c) (i) Option A
Machine Hours 12000 24000 28000 64000
hours
Units Produced 6000 3000 7000
Profit Statement
Contribution per Unit 16 32 24
Units Produced 6000 3000 7000
Total Contribution 96000 96000 168000 360000
Less Fixed Costs (£150,000 + £50,000) 200000
Profit 160000
Option B Factor 8
Contribution per Machine Hour
Selling Price 160
Less Variable Costs 110
Contribution per Unit 50
Machine Hours 10
5
Order of Priority 1 Factor 5
2 Factor 7
3 Factor 8
4 Factor 6
Factor 5 Factor 6 Factor 7 Factor 8 Total
Machine Hours
8000 12000 24000 20000 64000
hours
Units Produced 4000 1500 6000 2000
Profit Statement
Contribution per Unit 16 32 24 50
Units Produced 4000 1500 6000 2000
Total Contribution 64000 48000 144000 100000 356000
Less Fixed Costs (£150,000 + £30,000) 180000
Profit 176000
(c) (ii) Option B should be selected as it makes the largest profit.