## Question

###### 4:37 PM 4:37 PM Question 4 (7 Marks Hce Compuny is manufacing pcial sge ostai peplar...

4:37 PM 4:37 PM Question 4 (7 Marks Hce Compuny is manufacing pcial sge ostai peplar podcts (Sall De, and ig is be e pdes ene te A dden hotage of the pla d the podetion process nens he company to redce outp Nw the tie ied on the plastic injection moldng machine is no longer the botneck in he production process Itead the conrains e prodction pes is the qity of plasic w mrial that the company n Which product would now be the mot and least pfblegiven the sew come Rank the 3 prodcts and show your callations Saal Selling prce per un Variahle cost per ani Platic injectin molding machin procesing te reqired to prode o nit $255 S SI0 555 marks 4 mi 24 kg 13 mistes 10g Emins Plantic quastiky rosired par n e k 16kg Reqsired The tetal ime ogid n de platic jo lding mhie is the coi nt production peecess Which pdet weld be the mest and leant poitable s ef the constrain? Rank e 3 practs and shew your calealains a maks) 11

4:37 PM c Which product has the largest unit contribution margin? (1 mark) d. Explain why the product with the largest unit contribution margin is not necessarily the most profitable product if the constraints from part 1 and part 2 of this question apply. (2 marks) END OF EXAMINATION PAPER 13

- Question 4 (7 Marks) Bico Company is manufacturing special storage containers for gardens. Data on the three most popular products (Small, Deluxe, and Big) is below. Deluxe Small Big Selling price per unit Variable cost per unit... $180 $360 $255 $60 $100 $55 Plastic injection molding machine processing time required to produce one unit . Plastic quantity required per unit (in kg) 4 minutes 13 minutes 8 minutes 16 kg 24 kg 10 kg Required a. The total time required on the plastic injection moulding machine is the constraint in the production process. Which product would be the most and least profitable use of the constraint? Rank the 3 products and show your calculations. (2 marks)

A sudden shortage of the plastic raw material used for the production process requires the company to reduce its output. Now the time required on the plastic injection moulding machine is no longer the bottleneck in the production process. Instead the constraint in the production process is the quantity of plastic raw material that the company can buy. Which product would now be the most and least profitable, given the new constraint? Rank the 3 products and show your calculations. b. (2 marks)

Which product has the largest unit contribution margin? c. (I mark) d. Explain why the product with the largest unit contribution margin is not necessarily the most profitable product if the constraints from part 1 and part 2 of this question apply. (2 marks)

## Answers

a.

Small Deluxe Big Selling Price per unit A $ 180 $ 360 $ 255 Variable cost per unit B $ 60 $ 100 $ 55 Contribution per unit A - B $ 120$ 260$ 200Machine time per unit C 4 minutes 13 minutes 8 minutes Qty required per unit 24 kg 10 kg 16 kg Contribution per minute of machine time (A - B) / C $ 30 $ 20 $ 25 Rank 132b.

Small Deluxe Big Selling Price per unit A $ 180 $ 360 $ 255 Variable cost per unit B $ 60 $ 100 $ 55 Contribution per unit A - B $ 120$ 260$ 200Qty required per unit C 24 kg 10 kg 16 kg Contribution per KG of material (A - B) / C $ 5 $ 26 $ 12.50 Rank 312c.

Deluxe has the largest unit contribution margin.d.

The product with the largest unit contribution margin has the largest contribution if we see it as a unit of output. But if we evaluate it as inputs and break it down we find that it takes the maximum machine time per unit. So even though it has the largest unit contribution the same is spread over a larger time to calculate per minute contribution. In case of Qty of plastic material. it consumes the lowest, so here it gives the best ranking.

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