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Tea Product Y - 11.25/9 1.25 Since contribution per labour hour for product Y is higher so product Y is more profitable. a55 10. Selection
Tea Product Y - 11.25/9 1.25 Since contribution per labour hour for product Y is higher so product Y is more profitable. a55 10. Selection of a Suitable Product Mix A concern, which manufactures more than one product, may have to decide in what proportion should these products be produced or sold. The technique of marginal costing helps to a great extent in the determination of most profitable product or sales mix. The best product mix is that which yields the maximum contribution In the absence of key factor, contribution under various mix will be found out and the mix which gives the highest contribution will be selected for production Illustration 14 A company engaged in plantation activities has 200 hectares of virgin land which can be used for growing jointly or individually tea, coffee, and cardamom. The yield per hectare of the different crops and their selling price per kg. are as under: Yield Selling Price (kgs.) R per kg.) 2.000 20 Coffee 500 40 Cardamom 100 250 The relevant cost data are given below: (a) Variable cost per kg.: Coffee Cardamom () Labour charges 120 Packing materials Other costs 1 20 Total cost 14 13 150 (b) Fixed cost per annum: Cultivation and growing cost 10,00,000 Administrative cost 2,00,000 Land revenue 50,000 Repairs and maintenance 2,50,000 Other costs 3,00.000 Total cost 18.00.000 The policy of the company is to produce and sell all the three kinds of products and the maximum and minimum are to be cultivated per product is as follows: Maximum Area Minimum Area (hectares) (hectares) Tea 120 Coffee 50 30 Cardamom 30 10 Calculate the priority of production, the most profitable product mix and the maximum profit which can be achieved Tea 8 2 4 10 2 10 160
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