SJMSOM, IIT Bombay

Management Control Systems

Assignment 1

Ashish Rijhwani

M.Mgmt 2009-11

09927909
Q5)a) Contribution per unit for A: 7

B: 4

C: 10

Hence product C’s production should be maximized.

Hence total production will be divided as follows:

10,000 (A) + 10,000 (B) + 30,000 (C) = 50,000

Therefore the profit gained turns out to be

7*10,000 + 4*10,000 + 10*30,000 = 410,000

5)b) Contribution per unit for X: 13

Y: 15

Z: 7

Hence product Y’s production should be maximized.

Hence total production will be divided as follows:

10,000 (X) + 30,000 (Y) + 10,000 (Z) = 50,000

Therefore the profit gained turns out to be

13*10,000 + 15*30,000 +7*10,000 = 650,000

5)c) Since everything produced by intermediate division is to be used by Final

division Y’s production should be maximized and hence 30,000 of B should be
produced. Thus the profit will be

7*10,000 + 4*30,000 + 10*10,000 = 290,000

So instead of opting for this scenario it’ll be better to give $120,000 to the
intermediary division and have a total profit of $650,000.

7)a)

Break even occurs for C when it produces 1000 or 2000 extra.

If final division buys whatever intermediate division produces, then
intermediate division need not produce extra as they break even at 1000 and
2000 units.

7)b)

B) Final division has maximum contributionfrom Product Y. Hence product B must

be bought.
Case 1

1000 capacity : Profit = 15,000-12,000 = 3,000

Case 2

2000 capacity : Profit =30,000-24,000 = 8,000

Hence case 2 is better

7)c) Final division’s production and the company’s output are the same.