Question 12 (1 point) L Company produces three products with the following per u

Question

Question 12 (1 point) L Company produces three products with the following per unit information Product A Product B Sales Price Variable Costs $50 $32 $40 $19 Product C $25 $13 The company can produce 3 units of Product A per machine hour, 2 units of Product B per machine hour and 5 units of Product C per machine hour. The company currently has a production capacity of 2,000 machine hours per month. It can sell as many units of A, B and C that it can produce. How many units of Product C should L Company produce each month if it wants to maximize its profits? abs Round your answer to the nearest whole number with no commas. For example, enter 2,300.34 as 2300. Save

Explanation / Answer

12. First we need to calculate contribution given by each product. Contribution is Sales less variable cost

Contribution per unit for product A = $50-$32 = $18

Contribution per unit of product B = $40 - $19 = $21

Contribution per unit of product C = $25-$13 = $12

We have limited machine hours of 2000. So, will analyse the contribution of each product in terms of machine hours

Contribution of product A per machine hour (3 units) = 3 *$18 = $54

Contribution of product B per machine hour (2 units) = 2*$21 = $42

Contribution of product C per machine hour (5 units) = 5*$12 = $60

As we can see that contribution per machine hour is highest in case of product C, so company should go for the production of C first in order to maximize the profits.

Per machine hour, company can produce 5 units of product C

For 2000 hours, company can produce 2000*5 = 10000 units of product C for maximizing profits.

13. Per machine hour, contribution of product C is $60 (as calculated above).

For 2000 hours, product C's contribution = 2000*$60 = $120000.

Monthly net income = Contribution - fixed costs

= $120000 - $95000 = $25000

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