Question

FIFA Corrupt Co. manufactures and sells two kinds of calculators, business and scientific. While both calculators sell for the same price, the contribution margin is $80 for a business calculator and $60 for a scientific calculator. The business calculator requires one AA computer chip, while the scientific calculator requires one AAA chip. The two calculators are produced on the same production line that has a maximum capacity of 2,400 labor hours, but the business calculator takes twice as many labor hours as the scientific calculator. The AA chip costs $30, the AAA chip costs $80, and direct labor costs $10/hour. Each business calculator takes 6 direct labor hours to be produced. Both calculators are charged $15 for fixed factory overhead. FIFA Corrupt Co. can only acquire 200 AA chips and 600 AAA chips, but can sell all the calculators it produces. (8 points) Determine the optimal production of business and scientific calculators.

Answer 1

	Scientific	Business
Contribution margin	60	80
Hours/ per units	3	6
Contribution per hour	20	13.33
Rank	1	2

So, first we will produce maximum possible units of scientific and then of business model from the balance labour hours.

Optimal production
	Units	Hours used
Scientific	600	1800
	(max AAA chip)	(600*3)
Business	100	600
	(600/6)	(2400-1800)

I hope you understood how it has been calculated. Still in case of any further query leave a comment. And don’t forget to hit thumbs up if you feel like it.

answered by: anonymous