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 $ 1,554.00 $ 622.00 Variable costs per unit 440.00 230.00 Contribution margin per unit $ 1,114.00 $ 392.00 Direct labor hours per unit 8 hours 7 hours Expected demand for next quarter 170 desks 48 chairs Santana has determined that she only has 1,598 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

Calculation of Contribution per Labor Hour
Particular	Desk	Chair
Sale price	1554	622
Variable Cost	440	230
Contribution	1114	392
Direct Labor per Unit	8	7
Contribution per labor hr	139.25	56
Ranking	1	2
Since Desk have higher contribution per labor hour we need exhaust the demand of desK
	Demand	total hr requred	Remaining
desk	170*8	1360	238
Chair	34*7	238/7
		Contribution
Desk Produced	170	1114	189380
Chair produced	34	392	13328
Total Optimal profit			202708