Question

Woodstock Furniture manufactures a small table and a large table. The small table sells for​ $800, has variable costs of​ $580 per​ table, and takes 10 direct labor hours to manufacture. The large table sells for​ $1,500, has variable costs of​ $970, and takes eight direct labor hours to manufacture. The company has a maximum of​ 5,000 direct labor hours per month when operating at full capacity. If there are no constraints on sales of either​ product, and the company could choose any proportions of product mix that they​ wanted, what is the optimum product mix to maximize operating income of the​ company?

A. 625 units of small and 500 units of large

B. 500 units of small and 0 units of large

C. 0 units of small and 625 units of large

D. 500 units of small and 625 units of large

Answer 1

	Small table	Large table
Selling price	800	1500
Less: Variable costs	580	970
Unit Contribution margin	220	530
Direct labor hours per table	10	8
Contribution margin per Direct labor hour	22	66.25
As the Contribution margin per Direct labor hour is higher for Large table, the company should only produce Large table
Units of Large table = 5000/8= 625 units
Option C 0 units of small and 625 units of large is correct