Calculate the maximum price the company should be prepared to pay in total for the additional material.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A company produce two products from a single ingredient that normally costs £1 per kg and is in scarce supply

Product data are Product 1 Product 2

Maximum demand (units) 2800 1000       

Optimum planned production (units) 2800 500

Contribution per unit 6.00 9.00

Raw material used (kg) 3   5

The unit contribution figures are calculated after charging material cost at £1 per kg.

An additional source for the ingredient has been located with 2,000kg available.

Calculate the maximum price the company should be prepared to pay in total for the additional material.

A. 3600

B. 4000

C. 5600

D. 6000

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