Accounting 9706 · AS & A Level · Costs and cost behaviour

Costs and cost behaviour — practice question

A company produces and sells three product variants, M, N and O. The details below are given for each unit: Unit selling price: M $240$, N $280$, O $250$ Direct material cost: M $110$, N $120$, O $90$ Direct labour cost: M $65$, N $90$, O $100$ Variable overhead cost: M $20$, N $30$, O $25$ Fixed overhead cost: M $50$, N $30$, O $18$ Profit/(loss): M $(5)$, N $10$, O $17$ The same direct material is required by every product, and this material is scarce. In what order of priority ought the products to be made to achieve the highest possible profit?

  • A$M \rightarrow N \rightarrow O$
  • B$M \rightarrow O \rightarrow N$
  • C$N \rightarrow O \rightarrow M$
  • D$O \rightarrow N \rightarrow M$

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