Limiting Fctor Alpha Material A Material B Demand (Market) Demand (Grteed) Total Demand Material A For demand (Market)

For demand (Grteed) Total Demand Avaiable stock Excess Material B For demand (Market) For demand (Grteed) Total Demand Avaiable stock Excess 1,800 400 2,200 9,000 900 9,900 20,000 1,600 21,600 33,700 (34,000) (300) 2 2 900 200 1,100 2,200 1,800 400 2,200 Beta 3 3,000 300 3,300 9,900 Gamma 3 4 5,000 400 5,400 21,600 15,000 1,200 16,200 18,400 (22,000) (3,600) Total

Contibution Margin Selling Price Material A Material B Direct labour VOH CM per unit Material B required CM per unit of Material 'B Ranking

Alpha 66 (8) (12) (25) (3) 18 2 8.95 3

Beta 88 (18) (30) (3) 37 3 12.27 1

Gamma 106 (12) (24) (25) (1) 44 4 units required 10.95 2

Componets required for producing Zeta Material B Labour hours Machine Hours Material B Spare Abendoning Alpha Labour Labour based VOH Machine based VOH 1,500 units 600 hours 1,200 hours units 300 1,200 600 600 1,200 (We have a 300 spare units material B. For further 1,200 units we need to suspend the least profitable product)

Relevant CostTotal Cost 6 1,800 14.950 17,940 10 6,000 0.60 360 0.20 240

Total relevant cost Per unit acquisition Cost Its better to acquire it from the external buyer -

26,340 43.9 40

Alternatively (if partial purchases are assumed from external suppliers) 120 units from spare Material B Relavant cost Material B Labour Labour based VOH Machine based VOH Relevant cost of Zeta Acquisition Cost Produce 120 units internally 480 units relevant cost Material B Labour Labour based VOH Machine based VOH Relevant cost of Zeta 37 10 1 0 48 15.00 10.00 0.60 0.40 26.00 40

Acquisition Cost

40

Purchase 480 units units from external supplier

material B. For d to suspend the