Question

XYZ company produces and sells five products: A, B, C, D and E. The following data relate to its five products

A B C D E

Monthly demand in units 80 60 40 90 50

Selling price per unit $230 $70 $100 $80 $90

Variable costs per unit $110 $37 $64 $44 $ 27

Total fixed costs $100,000

Labor time in hours per unit 1.2 0.3 0.6 0.4 0.9

There are a total of 201 labor hours available per month

*Determine the product mix to maximize total contribution margin

Answer 1

Calculate product mix to maximum total contribution margin

	A	B	C	D	E
Selling price	230	70	100	80	90
Variable cost per unit	110	37	64	44	27
Contribution margin per unit	120	33	36	36	63
Labor time per unit	1.2	0.3	0.6	0.4	0.9
Contribution margin per hour	100	110	60	90	70
Rank	2	1	5	3	4

Product mix :

		Optimum product mix
Product B (60*0.3)	18 Hour	60 Units
Product A (80*1.2)	96 Hour	80 Units
Product D (90*.40)	36 Hour	90 Units
Product E (50*.90)	45 Hour	50 Units
Total hour	195 Hour
Hour available	201 Hour
Balance hour for product C (201-195)/.60	6 Hour	10 Units

Optimum product mix

	Product A	Product B	Product C	Product D	Product E
Optimum product mix	80 Units	60 Units	10 Units	90 Units	50 Units