Giant Inc. has 3,600 machine hours available each month. The following information on the company's three surgical kits is available:
| Surgical Kit 1 | Surgical Kit 2 | Surgical Kit 3 | |||||||||
| Contribution margin per unit | $ | 5.00 | $ | 4.00 | $ | 2.50 | |||||
| Machine hours per unit | 2 | 1 | 3 | ||||||||
| Sales demand in units | 1,000 | 800 | 900 | ||||||||
Required:
a. What production schedule will maximize the company's
profits?
b. What will be the maximum possible contribution margin?
total machine hours required
| product | surgical kit 1 | surgical kit 2 | surgical kit 3 |
| machine hour per unit | 2 | 1 | 3 |
| units | 1,000 | 800 | 900 |
| total machine hour required | 2,000 | 800 | 2,700 |
contribution margin per machine hour
| product | surgical kit 1 | surgical kit 2 | surgical kit 3 |
| contribution margin per unit | 5 | 4 | 2.5 |
| machine hour required per unit | 2 | 1 | 3 |
| contribution margin per machine hour | 2.5 | 4 | 0.83 |
| rank (best contribution) | 2 | 1 | 3 |
machine hour used for:
production of surgical kit 2 = 800 x 1 = 800
production of surgical kit 1 = 1,000 x 2 = 2,000
production of surgical kit 3 = 266 x 3 = 798
total machine hour = 3,600
maximum possible contribution margin
| surgical kit 1 (1,000 x 5) | 5,000 |
| surgical kit 2 (800 x 4) | 3,200 |
| surgical kit 3 (266 x 2.5) | 665 |
| total contribution margin | 8,865 |
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