Chapter 5

Question 1

CVP: Capacity Constraints

Answer 1

Every manufacturing business has an upper limit (or constraint) on the number of products that it can make. This constraint may be the number of machine hours per year available to make the products or a lack of skilled workers to operate the machines.

If a manufacturing business would like to make and sell two or more products but is faced with a capacity constraint, it will have to calculate how many products, of each type, it should make in order to maximise its profit.

Question 2

Contribution Margin per Machine Hour equation

Answer 2

Contribution margin per unit
________________________________________
Machine hours required per unit

= Contribution margin per machine hour