Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 12

An organization produces two products, X and Y. The materials used for the production of both products are limited to 500 kilograms (kg) per month. All other resources are unlimited and their costs are fixed. Individual product details are as follows:

Product X -

Product Y -

Selling price per unit -
$10
$13
Materials per unit (at $1/kg)
2 kg
6 kg

Monthly demand -
100 units
120 units
In order to maximize profit, how much of product Y should the organization produce each month?

Answer options

• A. 50 units.
• B. 60 units.
• C. 100 units.
• D. 120 units.

Correct answer: A

Explanation

To maximize profit while adhering to the material constraint, the organization should produce 50 units of Product Y. Producing 50 units of Product Y uses 300 kg of materials, leaving 200 kg for Product X, which can then be produced up to its demand. The other options either exceed the material limits or do not optimize the profit effectively.