Question

ABC Company produces Product X, Product Y, and Product Z. All three products require processing on specialized finishing machines. The capacity of these machines is 2,250 hours per month. ABC Company wants to determine the product mix that should be achieved to meet the high demand for each product and provide the maximum profit. Following is information about each product:

	Product X			Product Y			Product Z
Selling price	$	150		$	118		$	39
Variable costs		105			58			28
Machine time per unit		3	hours		3	hours		1	hour
Monthly demand (units)		460			290			740

Required:

Determine how the 2,250 hours of machine time should be allocated to the three products to provide the most profitable product mix. (Do not round intermediate calculations.)

Answer 1

Calculations		Product X			Product Y			Product Z
A	Selling price	$	150		$	118		$	39
B	Variable costs		105			58			28
C = A - B	Contribution		45			60			11
D	Machine time per unit		3	hours		3	hours		1	hour
E = C / D	Contribution per machine hour		15			20			11
F = Highest to lowest E	Ranking		2			1			3
G	Monthly demand (units)		460			290			740
H = G x D	Hours required to meet monthly demand		1380			870			740
I = Allocation based on ranking	Allocation of time		1380			870			0
	Calculation		2250-870			870			0

Product Y has the highest contribution per machine hour. So, all the demand of product Y will be met first and so required machine hours have been allocated to product Y first

Remaining machine hours will be then allocated to product X first as it is having the second ranking in terms of contribution per machine hour. After that if something remains, then that will be allocated to product Z