May 2021
So you think you know about Limiting Factor Analysis? Here Philip Dunn puts your knowledge to the test.
Cuecraft Ltd planned the following activity for quarter ended 31 March 2020:
| Products | P1 | P2 | P3 |
| Budgeted selling price | £100 | £90 | £80 |
| Volume | 1,200 | 1,000 | 1.200 |
| Direct Labour hrs/unit | 4 | 3.5 | 3 |
| Direct Labour Cost/unit | £36 | £31.50 | £27 |
| Direct Material Cost/unit | £20 | £18 | £13 |
The Variable overhead recovery rate per standard hour £3.
Fixed Costs/ quarter £45,000
The production and sales volumes above are based on maximum market demand for the products.
Early in the first few days of the budget period a machine in the
preparation area breaks down and a spare part is not available until the
quarter end. This will adversely affect the operating hours by 10%.
Q1: How many direct labour hours were required in the original plan?
Q2: What would be the revised capacity in direct labour hours?
Q3: Determine the contribution per unit of output for P1.
Q4: Determine the contribution per unit of output for P2.
Q5: Determine the contribution per unit of output for P3.
Q6: Determine the contribution per direct labour hour for P1.
Q7: Determine the contribution per direct labour hour for P2.
Q8: Determine the contribution per direct labour hour for P3.
Q9: Rank the products per contribution per the limiting factor.
Q10: Based on the ranking how many units of P3 should be produced
and sold?
Q11: Based on the ranking how many units of P2 should be produced
and sold?
Q12: Based on the ranking how many units of P1 can be produced and
sold?
Q13: Determine the profit achievable in the original plan.
Q14: Determine the profit achievable in the revised plan.
• Dr Philip E Dunn is a freelance author and technical editor for Kaplan and Osborne Books
ANSWERS
Q1: 11,900 direct labour hours
Q2: 10,710 direct labour hours
Q3: £32
Q4: 30
Q5: £31
Q6: £8
Q7: £8.57
Q8: £10.33
Q9: P3 P2 P1
Q10: 1,200
Q11: 1,000
Q12: 903
Q13: £60,600
Q14: 51,096
