Limiting Factor

[Tammi]

A company, which manufactures four components (A, B, C and D) using the same machinery, aims to maximize profit. The following information is available:
…………………………………………………............. Component
………………………………...............……………….A …..B…..C ….D
Variable production cost per unit (£)…… 60 …64 ...70 ..68
Purchase cost per unit from
an outside supplier (£) ………………….......100 ..120 130 110
Machine hours per unit to manufacture . 4 ….. 7 … 5 … 6
As it has insufficient machine hours available to manufacture all the components required, the company will need to buy some units of one component from the outside supplier.
Which component should be purchased from the outside supplier?

[marion]

Thanks for the question! I think the answer should be Component D, ie, that component with the least contribution per limiting factor,am i right?:swoon:

[jrggraham]

make the most expensive ones and buy the cheaper one. Subtract the variable cost of each unit from the selling price given by the supplier. Did the question say how much hours were limited?

[Tammi]

Thanks for the question! I think the answer should be Component D, ie, that component with the least contribution per limiting factor,am i right?:swoon:

Hi, Marion,
Why don't you post your working here? :wink:

[lws_sanlee]

A company, which manufactures four components (A, B, C and D) using the same machinery, aims to maximize profit. The following information is available:
…………………………………………………............. Component
………………………………...............……………….A …..B…..C ….D
Variable production cost per unit (£)…… 60 …64 ...70 ..68
Purchase cost per unit from
an outside supplier (£) ………………….......100 ..120 130 110
Machine hours per unit to manufacture . 4 ….. 7 … 5 … 6
As it has insufficient machine hours available to manufacture all the components required, the company will need to buy some units of one component from the outside supplier.
Which component should be purchased from the outside supplier?

Purchase cost - variable production cost
A = 40
B = 56
C = 60
D = 42
(Purchase cost - variable production cost) / machine hours per uint
A = 10
B = 8
C = 12
D = 7

the result is the component D should be purchased from the outside supplier.

[GEORGE]

I think the answer should be D as that price is very low for us to out source, and since we have the capacity to produce the expensive component in house.:cry: