Question

Bellring Ltd produces two products: Cordless and standard phone. The selling price of a Cordless phone is $200, and the selling price of a standard phone is $50. The variable cost per unit for the cordless phone is $50 and the variable cost per unit of the standard phone is $ 20. The direct labour hour requirement and demand for the two products are:

	Cordless	Standard
Monthly demand	400	250
Direct labour hour required per unit	4 hours	1.5 hours

Bellring Ltd's production capacity is 2500 direct labour hours. To maximise the profit, Bellring Ltd should produce:

		400 units of cordless and 250 standard phone
		400 units cordless phone only
		400 units of cordless and 333 standard phone
		None of the above

Which is the correct option?

Answer 1

	Cordless	Standard
Selling price per unit	$200	$50
(-) Varible cost per unit	$50	$20
Contribution Margin per unit	$150	$30
Direct Labour per unit	4 hour	1.5 hour
Contribution margin per labour hour	$37.5 ($150/4)	$20 ($30/1.5)
Ranking	I	II
Optimum Mix:- Hours	1600 (400unit*4 hour)	375 (250 unit*1.5 Hour)
Output	400 units	250 units

Therefore, to maximise the profit, Bellring Ltd. should produce 400 units of Cordless and 250 units of Standard Phone.

Option A. is the correct answer.