ExpertMedium2 marksShort Answer
ACCA · Question 24 · Budgeting
An agricultural equipment manufacturer is preparing its production budget. Maximum market demand for its main tractor model is 5,000 units. Each tractor requires 4 tons of specialized steel. The company's supplier can only provide a maximum of 15,000 tons of this steel for the year. There is no opening or closing inventory of steel or tractors.
Calculate the maximum number of tractors that can be produced, identifying the principal budget factor. (Enter the number of tractors only)
An agricultural equipment manufacturer is preparing its production budget. Maximum market demand for its main tractor model is 5,000 units. Each tractor requires 4 tons of specialized steel. The company's supplier can only provide a maximum of 15,000 tons of this steel for the year. There is no opening or closing inventory of steel or tractors.
Calculate the maximum number of tractors that can be produced, identifying the principal budget factor. (Enter the number of tractors only)
How to approach this question
1. Determine total material needed for max demand. 2. Compare to available material to identify the limiting factor. 3. Calculate production based on the limiting factor.
Full Answer
Material required for max demand = 5,000 units × 4 tons = 20,000 tons.
Available material = 15,000 tons. Since 15,000 < 20,000, specialized steel is the principal budget factor (limiting factor).
Maximum production = Available material / Material per unit = 15,000 tons / 4 tons = 3,750 tractors.
Common mistakes
Entering 5000 (ignoring the material constraint) or entering the tonnage (15000).
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