TASK - one company has one assembly line which can be used to produced only 1 of
ID: 1253461 • Letter: T
Question
TASK - one company has one assembly line which can be used to produced only 1 of 3 watch models. (it can work 12 hours per day).The sales, revenues and costs of one unit of each model of watches (in EUR):
Model A Model B Model C
Sales Price 100 110 95
Cost of materials 55 65 50
Cost of labour 20 30 25
PER HOUR: 2 modelA; 3 modelB; 4 modelC
QUESTION: assume that now there is a sortage of qualified labor and maximum amount of labor hours company can use per day is 70 (workers in company receive 10EUR per hour).Which model of watches should companu produce to maximize its profit? (=where contribution (CB) is the highest?; CB=P(price) - VC(vair.costs) )
Explanation / Answer
Model A sales price - VC(materials +labor) = 100 - 75 = $25 contribution margin
Model B sales price - VC(materials +labor) = 110 - 95 = $15 contribution margin
Model C sales price - VC(materials +labor) = 95 - 75 = $20 contribution margin
The company should produce the Model A watches. Model A provides the largest contribution (CB) at $25 per unit.
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