Calculate the maximum number of units that can be produced for Product P provided the company applies the policy of producing as per optimal utilization of the constrained resource.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
![W Incorporation produces three products, Product P, Product Q and Product R. Product P
requires 6 Labor hours per unit to be completed, Product B requires 8 labor hours per unit to
be completed and Product C requires 4 labor hours per unit to be completed. The company's
labor hours are limited to 60,000 hours. The information related to the three products are given
below:
Particulars
Product P
Product Q
Product R
Selling price per unit
Variable cost per unit
Demand (units)
$600
$800
$200
$350
$600
$150
5500
4800
2000
Calculate the maximum number of units that can be produced for Product P provided the
company applies the policy of producing as per optimal utilization of the constrained resource.
a. 4200 units
b. 5500 units
c. 3600 units
d. 2140 units](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F553c29e0-1bbe-489b-a807-e8b95ba583d1%2F045413fc-938a-4e1d-bd7b-5d5698218e78%2Fjyzg4ln_processed.png&w=3840&q=75)
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