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(II) Calculation of Fixed Factory Overheads: Factory Overheads - (No. of Units At Certain Level Of Activity X Variable Factory Overheads Per Unit). Therefore Rs.5,00,000
(II) Calculation of Fixed Factory Overheads: Factory Overheads - (No. of Units At Certain Level Of Activity X Variable Factory Overheads Per Unit). Therefore Rs.5,00,000 - (200 Units X 1,250) Therefore Rs.5,00,000 - Rs.2.50,000 = Rs.2,50,000 The Amount Can Be Verified By Making Calculation At Any Other Level 110 of Activity. (III) Variable Factory Overheads At 100% Level Of Activity: 400 Units X 1,250 = Rs.5,00,000 4. Key Factor A concern would produce and sell only those products which offer maximum profit. This is based on the assumption that it is possible to produce any quantity without any difficulty and sell likewise. However, in actual practice, this seems to be unrealistic as several constraints come in the way of manufacturing as well as selling. Such constraints that come in the way of management's efforts to produce and sell in unlimited quantities are called 'key factors" or "limiting factors. The limiting factors may be materials, labour, plant capacity, or demand. Management must ascertain the extent of the influence of the key factor for ensuring maximisation of profit. Normally, when contribution and key factors are known, the relative profitability of different products or processes can be measured with the help of the following formula: Contribution Profitability Key Factor Illustration 7: from the following data, which product would you recommend to be manufactured in a factory, time, being the key factor? Per Unit of Per Unit of Product X Product Y 24 2 Direct Material Direct Labour At Rel Per Hour Variable Overhead At Rs.2 Per Hour Selling Price Standard Time To Produce 4 14 3 6 110 3 Hours 100 2 Hours 196
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