The product mix decision LO 2, 3 ABC Company produces Product X, Product Y, and

Question

The product mix decision LO 2, 3 ABC Company produces Product X, Product Y, and Product Z. All three products require processing on specialized finishing machines. The capacity of these machines is 2,220 hours per month. ABC Company wishes to determine the product mix that should be achieved to meet the high demand for each product and provide the maximum profit. Following is information about each product: Required: Determine how the 2,220 hours of machine time should be allocated to the three products to provide the most profitable product mix.

Explanation / Answer

Calculations Product X Product Y Product Z A Selling Price 148 117 39 B Less: Variable Costs 103 60 28 C = A - B Contribution per unit 45 57 11 D Machine time per unit 3 3 1 E = C / D Contribution per machine hour 15 19 11 Rank 2 1 3 Demand 450 290 760 Maximum hours required 1350 870 760 Allocation of hours 1350 870 0

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