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Choosing the Optimal Product Mix with One Constrained Resource Billings Company produces two products, Product Reno...

  1. Choosing the Optimal Product Mix with One Constrained Resource

    Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 1,650 hours per year. Product Reno has a unit contribution margin of $125 and requires five hours of painting department time. Product Tahoe has a unit contribution margin of $52 and requires two hours of painting department time. There are no other constraints.

    Required:

    1. What is the contribution margin per hour of painting department time for each product?

    Contribution Margin
    Reno $
    Tahoe $

    2. What is the optimal mix of products? If an amount is zero, enter "0".

    Optimal Mix
    Reno units
    Tahoe units

    3. What is the total contribution margin earned for the optimal mix?
    $

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Homework Answers

Answer #1

(1)-The contribution margin per hour

Contribution Margin - Reno = $25.00 per hour [$125/ 5 Hours]

Contribution Margin - Tahoe = $26.00 per hour [$52.00 / 2 Hours]

(2)-The optimal mix of products

Optimal Mix – Reno = 0 Units

Optimal Mix – Tahoe = 825 Units [$1,650 / 2]

(c)-The total contribution margin earned for the optimal mix

The total contribution margin earned for the optimal mix = 825 Units x $52.00 per unit

= $42,900

(1)-The contribution margin per hour

Contribution Margin - Reno = $25.00 per hour [$125/ 5 Hours]

Contribution Margin - Tahoe = $26.00 per hour [$52.00 / 2 Hours]

(2)-The optimal mix of products

Optimal Mix – Reno = 0 Units

Optimal Mix – Tahoe = 825 Units [$1,650 / 2]

(c)-The total contribution margin earned for the optimal mix

The total contribution margin earned for the optimal mix = 825 Units x $52.00 per unit

= $42,900

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