Question

XYZ Company produces three products, A, B, and C. XYZ's plant capacity
is limited to 48,000 machine hours per year. The following information
is available for planning purposes:

                                    Product A       Product B       Product C
demand for next year .............  24,000 units   25,000 units   12,000 units
selling price per unit ...........    $80             $120            $160
direct material cost per unit ....    $24             $ 21            $ 38
direct labor cost per unit .......    $18             $ 50            $ 38
variable overhead cost per unit ..    $22             $ 25            $ 54 

It takes 0.80 machine hours to produce one unit of Product A; 1.25 machine
hours to produce one unit of Product B; and 1.60 machine hours to produce
one unit of Product C.

Calculate the total number of units of Product B that XYZ Company should
produce in order to maximize its net income.

Answer 1

Calculate contribution margin per hour :

	Product A	Product B	Product C
Selling price per unit	80	120	160
Direct material per unit	24	21	38
Direct labour per unit	18	50	38
Variable overhead cost per unit	22	25	54
Contribution margin per unit	16	24	30
Machine hour per unit	0.80	1.25	1.60
Contribution margin per hour	20	19.20	18.75
Rank	I	II	III

Product A used machine hour = 24000*.8 = 19200 hour

Product B Number of unit produced = (48000-19200)/1.25 = 23040 units

So Total number of units of product B Should produce for maximize its net incomeis 23040 units