My company makes a product X, product Y, and product Z. They all require process
ID: 2442868 • Letter: M
Question
My company makes a product X, product Y, and product Z. They all require processing on specialized finishing machines. The compacity of these machines is 3,600 hours per month. My company wishes to determine the product mix that should be achieved to meet the high demand for each product and provide the maximum profit.Product X Product Y Product Z
Selling Price $300 $240 $76
Variable costs 210 120 60
Machine time per unit 6 hours 4 hours 2 hours
Monthly demand (units) 360 240 600
Determine how the 3,600 hours of machine time should be allocated to the three products to provide the most porfitable product mix.
Explanation / Answer
Product X Product Y Product Z
Selling Price $300 $240 $76
Less : Variable costs $210 $120 $60
Contribution Margin $90 $120 $16
Machine time PU 6 hrs. 4 hrs. 2 hrs.
CM per MH $15 $30 $8
Produce Product Y 240 units : hrs. required 240 x 4 = 960 MH
Balance Machine hours = 3,600 - 960 = 2,640 MH
Produce Product X 360 units : hrs. required 360 x 6 = 2,160 MH
Balance Machine hours = 2,640 - 2,160 = 480 MH
Produce Product Z 240 units (480 / 2) 480 MH
Total Machine hours 3,600 MH
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Determine how the 3,600 hours of machine time should be allocated to the three products to provide the most porfitable product mix.
MH Units Contribution
Product X 2,160 360 $32,400
Product Y 960 240 $28,800
Product Z 480 240 $3,840
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