SM Limited is the manufacturer of the two products A & B. The following particulars are extracted from the records of the company: A B Maximum…

CA Intermediate · Cost and Management Accounting · PYQS · September 2025
SM Limited is the manufacturer of the two products A & B. The following particulars are extracted from the records of the company: A B Maximum Capacity 5,000 units 3,500 units Selling price per unit 1,000 1,500 Cost per unit: Raw Material @20 per kg 200 400 Wages @ 10 per hour 150 100 Direct Expenses 200 300 Variable overhead 80 120 The total fixed overhead for product A is 2,50,000 and for product B is 3,50,000. The company manufactures both the products using the same grade of material. The company is facing a constraint of raw material which is available in limited quantity of 1,10,000 kgs only. Required: Determine the optimum product mix, considering material as the limiting factor, to generate maximum profit and calculate the maximum profit.

Suggested Answer and Working Notes:

A (₹) B (₹) Selling Price 1,000 1,500 Less: Direct Materials 200 400 Direct Labour 150 100 Direct Expenses 200 300 Variable Overheads 80 120 Contribution per unit 370 580 Raw Material required per unit (Cost/20) 10 kg 20 kg Contribution per kg of raw material 37 29 Rank I II Calculation of Product Mix: Raw material available: 1,10,000 kg Product A (5,000 x 10) = 50,000 kg (5,000 units) Product B (3,000 x 20) = 60,000 kg (3,000 units) Statement of Profit: Particulars A B Total Units 5,000 3,000 Total Contribution 18,50,000 17,40,000 35,90,000 Fixed Cost 2,50,000 3,50,000 6,00,000 Profit 16,00,000 13,90,000 29,90,000

Topics: Marginal Costing

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