Question

Nike produces and sells three different products. There are only 640 machine hours available this month because one of the machines is down. Nike has the following information regarding the production and sales of the three products:

	Product A			Product B			Product C
Selling price	$	12.00		$	10.00		$	12.00
Variable cost per unit	$	8.40		$	6.00		$	4.80
Machine hours per unit		0.75			0.25			1
Demand		440			540			350

a. In what order should Nike prioritize production of the products?

multiple choice

• A,B,C

• B,C,A

• C,B,A

• A,C,B

b. Given the shortage of machine hours, how many of each product should be produced and sold to maximize profit? (Round down your answers to the nearest whole number.)

c. If Nike prioritizes production according to the answer in requirement b, what would the total contribution margin be? (Round your final answer to the nearest whole number.)

Answer 1

Contribution margin = Selling price - Variable cost v

Product A

= 12 - 8.40

=$3.6

Contribution margin per machine hour

= 3.6/0.75

= $4.80

Product B

= 10 - 6

= $4

Contribution margin per machine hour

= 4/0.25

= $16

Product C

= 12 - 4.80

= $7.20

Contribution margin per machine hour

= 7.20/1

=$7.20

As the contribution margin is highest of Product B and then Product C and last Product A , therefore order of production

= B , C , A

Therefore the correct option is 2nd.

B)

Total machine hours = 640 hours

Product B uses = 540*0.25 = 135

Product C uses = 350*1 = 350

Remaining hours = 640 - 135 - 350 = 155 hours

Product A = 155/0.75 = 207 units

Therefore

Product A = 207 units

Product B = 540 units

Product C = 350 units

C)

Total contribution margin

= 207*3.60 + 540*4 + 350*7.20

= 745.20 + 2,160 + 2,520

= $5,425.20