Question

A company has 3 alternative choices of Product Mix. It produces 2 Products, A and B. It can produce either: (a) 200 units of A and 400 units of B, (b) 300 units of A and 300 units of B, (c) 400 units of A and 200 units of B.
Other details:

	A(Rs.)	A(Rs.)
(1) Selling Price	400	300
(2) Variable Cost	320	240
(3) Fixed Cost	(Rs.)16,000

You have to decide the best profitable mix.

Answer 1

Particulars	Product A(Rs.)	Product B(Rs.)
(1) Selling Price	400	300
(2) Variable Cost	320	240
(3) Contribution (1) - (2)	80	60

First Choice: 200 Units of A and 400 Units of B:

Particulars	Product A(Rs.)	Product B(Rs.)	Total(Rs.) (a)+ (b)
(a) Contribution (per unit)	80	60
(b) Total Units	200	400
(c) Total contribution [(a) x(b )]	16,000	24,000	40,000
(d) Fixed Cost			16,000
(e) Profit [(c)- (d)]			24,000

Second Choice: 300 Units of A and 300 Units of B:

Particulars	Product A(Rs.)	Product B(Rs.)	Total(Rs.) (a)+ (b)
(a) Contribution (per unit)	80	60
(b) Total Units	300	300
(c) Total contribution [(a) x(b )]	24,000	18,000	42,000
(d) Fixed Cost			16,000
(e) Profit [(c)- (d)]			26,000

Third Choice: 400 Units of A and 200 Units of B:

Particulars	Product A(Rs.)	Product B(Rs.)	Total(Rs.) (a)+ (b)
(a) Contribution (per unit)	80	60
(b) Total Units	400	200
(c) Total contribution [(a) x(b )]	32,000	12,000	44,000
(d) Fixed Cost			16,000
(e) Profit [(c)- (d)]			28,000

Recommendation :
Third choice, (i.e. producing 400 units of A and 200 units of B) is adopted since it fives highest profit of Rs. 28,000 as compared to other 2 choices.