Question

Serra Industries is a fine food company producing burgers and sausages. It has 300 staff who work 8 hours a day, 5 days a week for 50 weeks. The demand for burgers and sausages does not exceed 50,000 and 150,000 kilos annually. Fixed factory overheads are applied on the basis of direct labor hours @$1 per hour.

	burgers	sausages
	$	$
Sales	10	15
Variable costs	5	6
Contribution margin	5	9
Fixed costs	2	4
Profit	3	5

What is the maximum profit and most profitable mix of products?

Answer 1

			Burgers	Sausages
Sales			10	15
Less: Variable cost			5	6
Contribution margin per unit			5	9
Divide: Labour hours			2	4
Contribution margin per hour			2.5	2.25
Ranking			I	II
Total Labour hours (300 staff*8 hours*5 days*50 week)						600000
Less: Maximum Hours consumed for Burgers						100000
	(Max demand 50000 units @2 hours)
Hours available for sausages						500000
Divide: hour required per unit						4
Number of units of Ssausages produced						125000
Therefore, product mix:
Burger:		50000	Units
Sausages:		125000	Units
Net income:
Contribution:
Burgers (50000 units @5)				250000
Sausages (125000 units @9)				1125000
Total contribution				1375000
Less: Fixed cost (600000 hours @1)				600000
Net income:				775000