Question

Santana Rey has found that Business Solutions’s line of computer desks and chairs has become very popular, and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows.

	Desks			Chairs
Selling price per unit	$	1,102.50		$	324.00
Variable costs per unit		470.00			130.00
Contribution margin per unit	$	632.50		$	194.00
Direct labor hours per unit		5	hours		4	hours
Expected demand for next quarter		169	desks		51	chairs

Santana has determined that she only has 1,001 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.

Answer 1

Ans:

			Desks	Chairs
Contribution margin per unit			632.50	194
Divide: Labour hour per unit			5	4
Contribution margin per DLH			126.50	48.5
			Desk	Chair	Total
Maximum Demand			169	51
Hours required to produce			845	204	1049
For most Profitable mix:
			Desk	Chair	Total
Hours dedicated to production			845	156	1001
Units produced for most profitable mix			169	39
Contribution margin per unit			632.50	194
Total contribution margin			106892.50	7566	114458.50

Hope this helped ! Let me know in case of any queries.