ACCOUNTING

Cambridge AS

MARGINAL COSTING
(Limiting Factor)

Lecturer: Rimas Eesa

(ACCA Affiliate)

Contact- 0774622742
Class recordings- 0774316286
Platinum Business Academy

MARGINAL COSTING
*Limiting factor Analysis

Q1) Company manufactures 3 products

A B C
Selling price/unit $50 $75 $100
D materials (at $5 per kg) $10 $25 $50
D labour (at $5 per hour) $10 $20 $25
Variable overheads $5 $5 $10
Maximum demand in units 5000 6000 4000

Total fixed overheads for all 3 products $50,000

Materials available for the period 60,000 kg labour
hours available for the period 50,000 hrs

Required:
a) Identify the limiting factor
b) Determine the optimum production plan that will maximize profits
c) profit for the period

Q2) ABC Ltd manufactures 3 products

X Y Z
$ $ $
Selling price/unit 60 80 100
D materials (at $3 per kg) 15 21 24
D labour (at $4 per hour) 16 24 20
Variable overheads 5 4 6
Fixed overheads $15,000 $10,000 $12,000
Maximum demand 4,000 5,000 4,000

Material available for the period 90,000 kg

Labour hours available 60,000 hrs

Required:
a) Identify the limiting factor
b) Determine the optimum production plan that will maximise profits
c) profit for the period
Platinum Business Academy

Make or Buy

Q3) Big box limited makes and sells boxes for which the following information is available:

$
Selling price 25
D materials 9
D labour 6
Variable selling expense 7

Fixed overheads amounts to $60,000

Big box has been approached by an external supplier to provide the same boxes at a price of
$18 per unit.
Advise Big box if they should continue to manufacture or buy and sell?

Acceptance of an order below normal selling price

Q4) ABC ltd manufactures and sells product X. The following information is available:

Selling price/unit $80

D Material/unit $20
D labour/unit $25
Variable overheads/unit $5
Fixed overheads/unit $10

A new customer has approached ABC ltd to purchase 3000 units at $58 per unit
Advise ABC ltd if the order should be accepted or rejected

Ceasing the manufacture of a product

Q5) P ltd manufactures 3 products for which the following information is available:

X Y Z
Sales $100,000 $60,000 $50,000
D materials ($40,000) ($25,000) ($15,000)
D labour ($20,000) ($15,000) ($10,000)
Fixed overheads ($10,000) ($25,000) ($5,000)
$30,000 ($5,000) $20,000

The directors wish to discontinue product Y as it has resulted in a loss.

Advise the directorswhat course of action they should take