Creative Star Corporation produces three lines of desks from wood: classic, roya

Question

Creative Star Corporation produces three lines of desks from wood: classic, royal, and standard. Cost and revenue data pertaining to each product are shown below:


Classic Royal Standard
Selling price $175 $245 $95
Total variable costs $75 $165 $65

Classic desks require five square yards of wood, Royal requires ten square yards, and Standard requires three square yards. High demand for each product line far exceeds the company's production capacity. If Creative Corporation has only 250,000 square yards of wood available, what is the highest total amount of fixed cost the company can incur and still break-even?

Explanation / Answer

For each unit of Classic 5 sq yards of wood is used and profit is 100,

Royal its 10sq yards 80 and

Standard its 3sq yards and 30 and

hence we only produce Classic as it gives more income for lesser wood.

With 250,000 sq yeards of wood we can make 50,000 classics giving $5,000,000, and this is the maximum FIxed Costs that we can breakeven

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