Question

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows:

	Product A		Product B		Product C
Sales price	$	44.00	$	54.00	$	84.00
Variable costs per unit		20.60		12.75		36.60
Fixed costs per unit		6.00		6.00		6.00
Required number of labor hours		1.50		2.50		3.00

Cordova currently is limited to 45,000 labor hours per month. Cordova’s marketing department has determined the following demand for its products:

Product A	11,000	units
Product B	7,000	units
Product C	5,000	units

Required:
Given the company’s limited resource and expected demand, compute how many units of each product Cordova should produce to maximize its profit. (Enter the products in the sequence of their preferences; the product with first preference should be entered first. Round your answers to the nearest whole number.)

Answer 1

Solution-

Particulars	Product A	Product B	Product C
Selling price (a) Variable cost per unit (b)	$44.00 $20.60	$54.00 $12.75	$84.00 $36.60
Contribution margin per unit (c) = (a) - (b) Required number of labour hours per unit (d)	$23.40 1.50	$41.25 $2.50	$47.40 3.00
Contribution per labor hour (e) = (c) / (d)	$15.60	$16.50	$15.80
Rank	3	1	2
Demand (units) (f)	11000	7000	5000
Time required for fulfilling the demands (hours) (g) = (f) * (d)	16500	17500	15000
Units to be produced	8333	7000	5000

Working- Contribution per labour hour is higher for Product B .For that reasons company should produce Product B first , then Product C , then Product A .

Units of Product A to be produced = [(45000 - 17500 - 15000) / 1.50]

= 12500 / 1.50

= 8333 units

Ans :-

Product	Units Produced
Product B	7000 units
Product C	5000 units
Product A	8333 units