How do you calculate how many units should the company produce to maximize profi

Question

How do you calculate how many units should the company produce to maximize profits?

Easy Cook Company manufactures two products: toaster ovens and bread machines.  The following data are available:

Toaster Ovens

Bread Machines

Sale price

$60

$135

Variable costs

$38

$62

Easy Cook can manufacture five toaster ovens per machine hour and three bread machines per machine hour. Easy Cook's production capacity is 1,500 machine hours per month.

Marketing limitations indicate that Easy Cook can sell a maximum of 5,000 toasters a month, and 3,000 bread machines per month. To maximize profits, what product and how many unit should the company produce in a month?

A) 4,500 bread machines             B) 2,500 toaster ovens and 3,000 bread machines C) 3,750 toaster ovens and 2,250 bread machines D) 7,500 toaster ovens

PLEASE SHOW WORK THANK YOU

Toaster Ovens

Bread Machines

Sale price

$60

$135

Variable costs

$38

$62

Explanation / Answer

Contribution margin per minute :

3000*20/60 = 1000 hour

(1500-1000)/12 =500*5 = 2500

so answer is b) 2500 toaster oven and 3000 bread machine

Toaster ovens Bread machine Sale price 60 135 Variable cost 38 62 Contribution margin per unit 22 73 Minute per unit 12 20 Contribution margin per minute 1.83 3.65

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