Questions on Limiting Factor Theory

1. Z Limited
Z Limited manufactures three products, the selling price and cost details of which are given
below:
X Y Z

Rs. Rs. Rs.

Selling price per unit 300 380 190

Direct materials (Rs. 10/kg) 40 20 60

Direct labour (Rs. 4/hour) 64 96 80

Variable overhead 32 48 40

Fixed overhead 96 144 120

During the specific period, direct materials are restricted in supply.

Required:
State the ranking of the products; most profitable should be ranked first.
2. MS Limited
MS Limited makes two products, the M and the S. Unit variable costs are as under:
M S

Rs. Rs.

Direct materials 100 300

Direct labour (Rs. 50 per hour) 600 300

Variable overhead 100 100

The sales price per unit is Rs. 1,400 per M and Rs. 1,100 per S. During September, the available
direct labour is limited to 80,000 hours. Sales demand in September is expected to be as follows:
M 3,000 units
S 5,000 units
Required:
Determine the production mix that will maximize contribution.
3. Q Limited
Q Limited makes two products – Q111 and Q112. Both products are produced from same a raw
material that is limited to 8,000 kg per month. The relevant details are given as under:
Q111 Q112

Rs. Rs.

Selling price per unit 80 72

Direct materials (Rs. 8/kg) 24 20

 Direct labour 16 12

Variable overhead per unit 8 6

Maximum demand of product Q111 is estimated at 600 units per month; whereas Q112 has
unlimited demand.
Required:
Calculate the optimal production mix that maximizes the contribution for Q Limited. Also
calculate the amount of monthly contribution.
4. Lucky Manufacturers
Lucky manufacturers produces and sells three products, J, K and L, for which budgeted sales
demand, unit selling prices and unit variable costs are as follows:
J K L

Budgeted sales demand (Units) 5,500 5,000 4,000

Unit sales price 8.00 9.00 7.00

Materials 4.00 3.00 1.00

Labour 2.00 3.00 4.50

The organization has existing inventory of 2,500 units of X and 2,000 units of Z, which it is quite
willing to use up to meet sales demand. All three products use the same direct materials and the
same type of direct labour. In the next year, the available supply of materials will be restricted
to Rs. 24,000 and the available supply of labour to Rs. 33,000.
Required:
Determine what product mix and sales mix would maximize the organisation’s profits in the next
year.
5. MGT Limited
MGT Limited produces three products. The unit cost, selling price and bottleneck resource
details per unit are given as under:
M G T

Rs. Rs. Rs.

Selling price per unit 201 267 288

Materials 93 114 138

Labour 60 54 72

Variable overhead 18 54 45

Fixed overhead 6 24 21

Bottleneck resource time (Mins) 10 15 18

 Maximum demand (Units) 6,000 4,000 5,000

Minimum demand (Units) - - 1,000

Maximum time of bottleneck resource available 2,800 hours.

Required:
Calculate the optimal production mix.
6. Mujahid Industries Limited
Mujahid Industries Limited’s budget department has produced the following data for the next
quarter:

A B C D E

Maximum production (Units) 3,000 4,000 6,000 7,000 9,000

Selling price per unit (Rs.) 160 150 180 150 300

Variable cost per unit:

Material 30 50 40 70 60

Skilled labour (Rs. 40 per hour) 40 40 60 20 80

Unskilled labour (Rs. 20 per hour) 20 20 10 10 40

Variable overheads are recovered at the rate of Rs. 10 per labour hour. The skilled labour
available amounts to 30,000 hours in the next quarter and there are fixed cost of Rs. 22,800.
Required:
a. Calculate the product mix which would result in the maximum profit;
b. Assume that the Rate per hour of skilled and unskilled labour is expected to increased by
50% and 20% respectively, calculate the new product mix assuming no other change shall
occur.

7. Kiran Limited (PIPFA Winter 2012 Q3; PIPFA Winter 2013 Q4-a)
Kiran Ltd. manufactures three products Alpha, Beta & Gamma. Planned production for the three
months to 31st March 2012 is: Alpha 10,000 units, Beta 7,000 units, Gamma 4,000 units.
The following information for each production is available:
Per unit Alpha Beta Gamma

Raw Materials: Delta (Kg) 5 6 4

Man hours @ Rs. 8 per hour 10 8 12
Other variable expenses (Rs.) 115 144 78
Selling price (Rs.) 800 880 670

Delta costs Rs. 100 per kilo and it has now been ascertained that while 108,000 kilos are needed
to produce budgeted output, only 96,000 kilos will be available in the three months to 31st
March 2012. Fixed overheads amount is Rs. 300,000 per month.
 Required:
i) Prepare a statement showing the ranking of each product in the order of the contribution
yielded per unit of the scarce resource. (09-Marks)
ii) Prepare a statement showing the number of units to be produced which will maximize the net
profit and also calculate the net profit for the three months to 31st March 2012. (06-Marks)

8. Sangdil Limited (ICAP Autumn 2011 Q8)

Sangdil Limited makes two products, SS and TT. The variable cost per unit are as follows:
SS TT

Rs. Rs.
Raw Materials 6.00 18.00
Direct labour (Rs. 18.00 per hour) 36.00 18.00
Variable Overhead 6.00 6.00

Total Variable cost 48.00 42.00

The selling price per unit is Rs. 84.00 for SS and Rs. 66.00 for TT. During July 2001 the available
direct labour is limited to 48,000 hours. Sales demand in July is expected to be 18,000 units for
SS and 30,000 units for TT.
Fixed cost is Rs. 200,000 per month.
Required:
Determine the profit-maximizing production level for the products SS and TT (14-Marks)
9. Dawnparler (Private) Limited (ICMAP February 2014 Q5-a)
Dawnparler (Private) Limited manufactures three products rusk, bread and biscuits. Owing to
the perishable nature of these products, no finished goods stocks are held.
Information relating to these products is as follows:
Rusk Bread Biscuit

Quantity of material used per packet manufactured

Meda (Kg) 3 2 4

Suji (Kg) 8 3 8

Maximum sales demand (packets) 120 120 120

Contribution per packet sold (Rs.) 24 12 16

The company that supplies the two raw materials that are used in all three products has
informed Dawnparler (Private) Limited that due to power load-shading, material supply will be
limited to the following quantities in March 2014:
Meda 1,800 Kgs.
Suji 1,800 Kgs.
Supply Chain Manager informed that other source of supply cannot be arranged on such short
notice.
Required:
 (i) As Chief Financial Officer of the company, you are required to recommend a production mix
that will maximise the profits of Dawnparler (Private) Limited for March 2014. (09-Marks)
(ii) Dawnparler (Private) Limited has a valued customer to whom they wish to guarantee the
supply of 90 packets of each product in March 2014. Would this customer demand ask you to
alter your recommended production plan? If yes, recommend alternate production plan. (03-
Marks)
10. CTC Limited (PIPFA Winter 2010 Q3)
CTC Ltd manufactures three products X, Y, Z using the same material & labour. Unit cost
information is as follows:

X Y Z

Rs. Rs. Rs.

Selling price/unit 30 36 56

Material @ Rs5/kg 10 15 20

Labour @ Rs3/hr 12 12 24

Annual demand (units) 10,000 15,000 8,000

In a particular year only 100,000 Kgs of material is available and 145,000 labour hours are
available.
Required:
a) Identify the limiting factor (02-Marks)
b) Rank these products in order of priority in which they should be produced (02-Marks)
c) Calculate the optimal production plan (03-Marks)
d) Calculate the maximum contribution which can be earned (03-Marks)
11. Vanguard Limited (PIPFA Winter 2009 Q7-a)
Vanguard Ltd. manufactures four types of camera which all use “CompX”, a component made
only in one factory. Each “Comp X” costs Rs.50 to purchase. Due to a prolonged strike of
workers in the “CompX” factory, Vanguard Ltd. will only be able to purchase 20,000 this year.
The following information relates to each type of camera manufactured by Vanguard Ltd.

Digital Cine Closed Medical

cameras cameras circuit cameras
cameras

Maximum demand (units) 10,000 4,000 3,000 500

Cost per camera Rs. Rs. Rs. Rs.

Comp X 50 100 200 350

Other direct materials 40 90 98 300

 Direct labour 20 30 30 55

Fixed costs 60 80 40 70

Profit per camera 50 70 52 490

Selling price per camera 220 370 420 1,265

Required:
Calculate the numbers of each type of camera to be produced and sold that would maximize the
profit of Vanguard Ltd. (12-Marks)

12. Toy Limited (PIPFA Winter 2008 Q3)

M/s Toy Limited is a manufacturer of two types of toys. One is car and other is scooter. There is
no restriction on sales. Every piece of toy manufactured is sold in the market at the budgeted
sales price.
As a toy manufacturing is a technical job. Technical labour supply is restricted in the area where
factory is situated.
The car takes 9 hours to make where scooter takes only 6 hours. Other data is as under:

Car Scooter

Rs. Rs.

Variable cost 54 30

Sales price 90 60

Both the products use same type of labour which is in restricted supply.
Required:
What product should be ranked in priority? (15-Marks)

13. FG Products (PIPFA Summer 2009 Q7)

A company sells two products F & G. The budgeted figure depict the under mentioned picture.
Product F Product G
(per unit) (per unit)
Rs. Rs.

Selling price 120 144

Variable cost 60 120

Common fixed Cost Rs. 1,025,800

Required:
 Which product should be promoted & why? (07-Marks)

14. Crystal Manufacturing Company (PIPFA Summer 2013 Q3)

The production department of Crystal Manufacturing Company must make a product mix
decision in the light of shortage of direct materials.
The following data is available for products X & Y:
Product X Product Y

Selling price per unit Rs. 12 Rs. 10

Direct materials Rs. 4 Rs. 2

Direct labor Rs. 1 Rs. 3

Variable FOH Rs. 3 Rs. 8 Rs. 2 Rs. 7

Contribution margin per unit Rs. 4 Rs. 3

Number of pounds of direct material

2 1
required per unit

Maximum sales in units 2,000 5,000

Required:
Determine the number of units of product X and product Y to be produced if only 8,000 pounds
of direct materials are available. (10-Marks)

15. Ali Sons (PIPFA Summer 2019 Q5)

Ali Sons makes two products, the Apple and the Mango. Unit variable costs are as follows;
Apple Mango

Rs. Rs.

Direct materials 10 30

Direct labour (Rs. 30 per hour) 60 30

Total 70 60

The sales price per unit is Rs.130 per Apple and Rs. 100 per Mango. During a month the available
direct labor hours is 8,000 hours.
Sales demand in July is expected to be as follows.
Apple 3,000 units
Mango 5,000 units
Required:
(a) Determine the production budget that will maximize profit, assuming that fixed costs per
month as Rs.200,000 and that there is no opening inventory of finished goods or work in
progress. 25-Marks
(b) What is the significance of constraints in decision making? 05-Marks