Question

Part B

Peripheral Company produces two product, Product C and Product D.

The selling price for Product C is $46 per unit; the selling price for Product D is $50 per unit.

The variable costs for Product C are $20 per unit; the variable costs Product D are $25 per unit.

Both products use two types of labor, from separate pools (i.e., types) of employees: Pool 1 and Pool 2.

For the upcoming accounting period, Pool 1 labor has 12,000 hours available. For the same accounting period, Pool 2 labor has 25,000 hours available.

Product C uses 0.5 hours of Pool 1 labor and 1.9 hours of Pool 2 labor. Product D uses 1 hour of Pool 1 labor and 2.2 hours of Pool 2 labor.

Required Given a short (or even intermediate) term financial perspective, what would you recommend to Peripherals' management regarding how to manage the two sources of labor, assuming that at least one of the two pools of labor is the most constrained resources. Show calculations to support your answer.

Answer 1

Answer is given below

Since labor hour is constraint contribution is ranked in terms of per labor hour to decide best product mix