Question

Kwinana Ltd makes three types of products, the details of which are as follows:

Product	CT101	CT151	CT350
Selling price per unit ($)	25	20	23
Variable cost per unit ($)	(10)	(8)	(12)
Weekly demand (units)	25	20	30
Machine time required per unit (hours)	4	3	4

Fixed cost is not affected by the choice of product because all three products use the same machine. Machine time is limited to 148 hours a week.

Required:                                                                                                                         

a)	Which combination of products should be manufactured if the Kwinana is to produce the highest profit?
b)	What is the maximum price that the business concerned would logically be prepared to pay to have the remaining CT101 machined by a subcontractor, assuming that no fixed or variable cost would be saved as a result of not doing the machining in-house?

Answer 1