Question

Rosie’s Company has three products, P1, P2, and P3. The maximum Rosie’s can sell is 68,000 units of P1, 33,000 units of P2, and 21,000 units of P3. Rosie’s has limited production capacity of 18,000 hours. It can produce 12 units of P1, 6 units of P2, and 3 units of P3 per hour. Contribution margin per unit is $5 for the P1, $15 for the P2, and $25 for the P3. What is the most profitable sales mix for Rosie’s Company?

Answer 1

	P1	P2	P3
Production Per hour (A)	12	6	3
Contribution Margin per unit (B)	5	15	25
Contribution Margin per Hour (A *B )	60	90	75

Most profitable product is P2 where the second most is P3.

Thus, P2 should be produed first and then P3 and if there is still the balance capacity, P3 shall be produced.

	P1	P2	P3
Demanded units (D)	68000	33000	21000
Per hour production (E)	12	6	3
Hour required (D/E)	5666.667	5500	7000

The hour required to produce P2 and P3 shall be, 12500 hous. The reamining 5500 hours shall be used to produced P1 which will give an output of 66000 units. (The demanded 68000 units cannot be produced due to limited hours available - 18,000 hours)