A company sells two products with information as follows: A B Sales price per un
ID: 2474332 • Letter: A
Question
A company sells two products with information as follows:
A
B
Sales price per unit
$11
$20
Variable cost per unit
$10
$10
The products are machine made. Four units of product A can be made with one machine hour and two units of product B can be made with one machine hour. The company has a maximum of 3,000 machine hours available per month. The company can sell up to 18,000 units of product A per month, and up to 3,000 units of product B for the month. What is the optimum product mix to maximize company's operating income?
A.
1,500 units of A and 36,000 units of B
B.
zero units of A and 3,000 units of B
C.
6,000 units of A and zero units of B
D.
-6,000 units of A and 3,000 units of B
A
B
Sales price per unit
$11
$20
Variable cost per unit
$10
$10
Explanation / Answer
Answer: D: 6000 units of A & 3000 units of B.
calculations:
available machine hours 3000 maximum possible sale-units A-18000 B-3000 A B selling price - unit 11 20 variable cost - unit 10 10 contribution - unit 1 10 no of units in 1 machine hour 4 2 contribution per machine hour 4 20 As B gives more contribution per machine hour utilised, B should be produced to the extent of maximum sale possible, ie: 3000 units and balance hours should be utilised for production of A. So production of B = 3000 units, utilising 1500 hours. production of A = balance 1500 hours * 4 = 6000 units.Related Questions
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