Question

Carla Vista Co. is considering the introduction of three new products. Per unit sales and cost information are as follows:

			A				B				C
Sales		$	3.00			$	6.00			$	16.00
Variable costs		$	1.20			$	3.40			$	11.00
Fixed costs		$	0.50			$	1.00			$	3.50
Labor hours per unit			0.75	hours			1.25	hours			2.00	hours
Monthly demand in units			700				650				250

The company has only 1,500 direct labor hours available to commit to production of any new products.

How many of each product should Carla Vista Co. produce and sell to maximize its profit? (Round answers to 0 decimal places, e.g. 5,275.)

A
B
C

Answer 1

	A	B	C
sales	3.00	6.00	16.00
less; variable cost	(1.20)	(3.40)	(11.00)
contribution per unit	1.80	2.60	5.00
contribution per labor hour (contribution per unit / labor hours per unit)	(1.80/0.75)=>$2.40	(2.60/1.25)=>$2.08	(5/2.00)=>$2.50

Since C has higest contribution per labor hour, first priority shall be given to C, next to A and then to B.

calculation of hours required and units of each product to be produced to maximize profit.

product	number of hour to be used	number of unit produced
C	250 units*2.00 hours =>500 hours	250
A	700 units *0.75 hours =>525 hours	700
B	(1500-500 hours for C - 525 hours for A)=>475 hours remain )	380 (see note)

number of units of B = 475 hours /1.25 hours per unit.

=>380 units