Question 1

Section B - Case 2: BioNutri

BioNutri manufactures two specialized nutritional supplements: Alpha and Beta. Both products require processing on a specialized mixing machine. The machine is available for a maximum of 1,200 hours per month.

Product details:
Alpha: Selling price $50, Variable cost $30, Machine hours per unit: 2 hours. Maximum demand: 400 units.
Beta: Selling price $70, Variable cost $40, Machine hours per unit: 4 hours. Maximum demand: 300 units.

BioNutri has the opportunity to rent an additional identical mixing machine. What is the shadow price (maximum premium per hour) BioNutri should be willing to pay for one additional machine hour? (Enter the number only).

Accepted Answer

The shadow price is the contribution generated by one additional unit of the limiting factor. Since Alpha's demand is fully met, an extra hour would be used to make more Beta.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Stating $10 (the contribution of Alpha), forgetting that Alpha's demand is already capped.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 1

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