Question

Hunt’s has 28,000 labor hours available for producing A and B. Consider the following information:

                                                            A                      B

Required labor per unit in hours     4                    2

Maximum demands in units              8,000                        7,000

Contribution margin per unit            $8                 $7.50

What is the optimal product mix (how many A and B should be produced?) Explain your answer and show computations.

Answer 1

PARTICULAR	A	B	TOTAL
LABOUR HOUR PER UNIT	4 HR	2 HR
MAXIMUM DEMAND(UNITS)	8000	7000	15000
TOTAL LABOUR HOURS REQUIRED	32000 HR	14000 HR	46000 HR
TOTAL LABOUR HOURS AVAILABLE			28000 HR
CONTRIBUTION MARGIN PER UNIT	$ 8	$ 7.50
TOTAL CONTRIBUTION MARGIN (MAXIMUM UNITS * CONTRIBUTION MARGIN)	$64000	$52500
TOTAL CONTRIBUTION MARGIN PER LABOUR HOUR	$64000/32000HR=$2 PER HOUR	$52500/14000HR=$3.75 PER HOUR
RANK AS PER CONTRIBUTION PER HOUR BASIS	2ND	1ST
ALLOTAMENT OF LABOUR HOURS	28000 HRS-14000HRS=14000HRS	7000 UNITS *2 HR=14000 HOURS	28000
UNITS TO BE PRODUCED	14000HRS/4HRS= 3500 UNITS	7000 UNITS	10500 UNITS