Sales alternative (b): 450 units of 'A' and 450 units of 'B' Contribution: Product A: 450 units x 20 Product B: 450 units x 45 Total Contribution Less: Fixed Overhead Profit Sales alternative (c): 600 units of 'A' and 300 units of 'B' Contribution: 9,000 20.250 29,250 10,000 19.250 Product A: 600 units x 20 12.000 Product B: 300 units x 345 13,500 Total Contribution 25,500 Less: Fixed Overhead 10,000 Profit Hence sales mix under alternative (a) is more profitable as it gives maximum total contribution and profit. 15,500 2. Problem of Limiting Factors Limiting factor (also known as 'key factor') is a factor which limits production and/or sales and thus prevents the manufacturing concern from eaming unlimited profits. The limiting factors or key factors may be shortage of raw material, shortage of skilled labour and machine capacity, market for sales etc. In case of the existence of a key factor, a problem may arise as to which product should be pushed more in order to maximise profits. Selection of the profitable product shall be made on the basis of the contribution per unit of limiting factor. The profitability of a product with reference to limiting factor can be assessed as follows: Profitability = Contribution / Limiting Factor per unit Illustration 3 In a factory producing two different kinds of articles, the limiting factor is the availability of labour. From the following information, show which product is more profitable: Product A Product B Cost per unit Cost per unit () () Materials 5.00 5.00 Labour 6 Hours @ 0.50 3.00 3 Hours @ 0.50 1.50 Overhead: Fixed (50% of labour) 1.50 0.75 p' Variable Total Cost Selling Price Profit Total Production for the month (Units) 1.50 11.00 14.00 3.00 500 1.50 8.75 11.00 2.25 600 Maximum capacity per month is 4,800 hours. Give proof in support of your