Fictional constrained production
A fictional workshop has100available machine hours for a short planning period. Product A sells for50currency units and has variable cost30per unit, using two machine hours. Product B sells for40and has variable cost25per unit, using one machine hour. Demand in this simplified scenario is sufficient for either product, fixed costs do not change, and no other bottleneck applies. A manager favors A because its contribution per unit is larger. Another proposes allocating historical head-office charges to decide the order. The exercise asks for a conditional allocation, not a real production instruction. After the calculation, the team must identify what would change if demand for B were limited, overtime introduced a new cost or quality requirements reduced usable capacity.
1. Which product should receive scarce time first in this model?
Read the worked answer
A contributes20per unit and10per machine hour. B contributes15per unit and15per machine hour. B has the larger contribution per scarce hour under the supplied assumptions.
2. What needs checking before applying the result?
Read the worked answer
Confirm demand, actual incremental costs, usable capacity and other constraints. Historical allocated overhead does not automatically change with this short-term choice.