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# Limiting Factor - Essay Example

## Extract of sampleLimiting Factor

76.00 ?116.00 Contribution Margin % 10.48% 8.64% 9.67% Total Sales ?12,600,000.00 ?10,560,000.00 ?14,400,000.00 Total Unit Costs ?11,280,000.00 ?9,648,000.00 ?13,008,000.00 Total Contribution Margin ?1,320,000.00 ?912,000.00 ?1,392,000.00 Fixed overhead(?2,400,000) Total Income ?1,224,000.00 New Production Budget product x product y product z Projected Unit sales 18000 15000 15996 Selling Price per Unit ? 840 880 1200 Contribution Margin ?88.00 ?76.00 ?116.00 Contribution Margin % 10.48% 8.64% 9.67% Total Sales 15120000 13200000 19195200 Total Unit Costs ?13,536,000.00 ?12,060,000.00 ?17,339,664.00 Total Contribution Margin ?1,584,000.00 ?1,140,000.00 ?1,855,536.00 Total Income ?2,179,536.00 Profit Maximizing Production Budget product x product y product z Projected Unit sales 18000 15000 7800 Selling Price per Unit ? 840 880 1200 Contribution Margin ?88.00 ?76.00 ?116.00 Contribution Margin % 10.48% 8.64% 9.67% Total Sales ?15,120,000.00 ?13,200,000.00 ?9,360,000.00 Total Unit Costs ?13,536,000.00 ?12,060,000.00 ?8,455,200.00 Total Contribution Margin ?1,584,000.00 ?1,140,000.00 ?904,800.00 Total Income ?1,228,800.00 1) The following current production budget was prepared at the end of our fiscal year following a recessionary period resulting in reduced demand for our product line. We have budgeted sales of 15,000 units for product X, 12,000 units for product Y, and 12,000 units of product Z for the coming fiscal year. In order to produce each product type separate labor requirements from department A, B, C are required at different stages of production in order to complete the production of each product type. Additionally each product type has a different variable cost rate for each unit manufactured. This variable cost rate for each department is allocated in order to cover costs such as machine time, electricity, maintenance, and equipment depreciation (Banker, Datar, Kaplan). As we can see our total production cost for each unit of product X, Y, Z consists of a variable cost rate and total labor from all three production departments. The total production costs for each unit of product X was ?752, ?804 for product Y and ?1084 for product Z. Taking into consideration the total required units of production for each product line for the whole year, the total production costs for Product X was ?11,280,000, ?9,648,000 for Product Y, and ?13,008,000 for Product Z. The total revenue for all three product lines was ?37,560,000 with total variable production costs of ?33,936,000.The fixed overhead costs budget for the plant, regardless of output level is ?2,400,000 a year. Total income (total revenue - total variable costs – fixed costs) for the year utilizing the original production budget equals ?1,224,000 (Imanet, 2008). 2) According to our sales manager there is a limitation on producing any additional units of production. Department B does not have any additional production capacity due to lack of skilled labor workers which to hire in order to accommodate any additional manufacturing output. By performing a cost volume profit analysis of our product line we can determine which product mixture will provide maximum profit maximization potential based on the manufacturing limitations with relation to Department B (Horngren, Foster, Datar, 2000). The contribution margin of a product provides the user with the amount in pounds that each individual unit sale contributes towards income after all variable ...Show more

## Summary

product x product y product z ? per unit ? per unit ? per unit Standard costs Direct materials 200 480 360 Variable overhead 48 28 64 Rate per hour ? Hours per unit Hours per unit Hours per unit Department A 10 28 16 30 Department B 12 8 6 10 Department C 8 16 8 30 Unit Costs: product x product y product z Direct materials 200 480 360 Total Labor ?…
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