nExercise20.10 Product Mix Decision, Single Constraint Behar Company makes three
ID: 2585934 • Letter: N
Question
nExercise20.10 Product Mix Decision, Single Constraint Behar Company makes three types of stainless steel frying pans. Each of the three types of pans quires the use of a special machine that has total operating capacity of 182,000 hours per year. Information on each of the three products is as follows: Basic Standard Deluxe Selling price Unit variable cost Machine hours required $12.00 S17.00 S32.00 S7.00 $11.00 S12.00 0.50 0.10 0.20 The marketing manager has determined that the company can sell ll that it can produce of each of the three products. Required: 1. How many of each product should be sold to maximize the total contribution margin? What is the total contribution margin for this product mix? Suppose that Behar can sell no more than 300,000 units of each type at the prices indicated. What product mix would you recommend, and what would be the total contribution margin? 2.Explanation / Answer
The selling price for basic ,standard and deluxe = 12, 17 , 32 less: Variable cost for basic ,standrd and deluxe = 7,11,12 Contribution: per unit are $ 5 , $ 6 , $ 20
machine hours required - 0.10 , 0.20 , 0.50 (given)
P/V factor = Contribution / machine hours = 5 /0.10 = $50 6 /0.20= $ 30 20 / 0.50 = $40
now as per the PV factor ranking will be given - Rank order will be 1 , 3 , 2 since rank 1st is given to the BASIC PRODUCT - hence basic units should be produced first of Basic product
the total machine hours available is 182000 hours 182000 / 0.10 = 1820000 units will be produced of the Basic product . since there is no bar on the number of units produced hence all the units should be produced of the BASIC PRODUCT.
total contribution margin =units * contribution per unit 1820000 * 5 = $ 91,00,000
Similarly the same procedure should be applied for the production of units as per the PV factor . and the number of units will be produced as per the Ranking order but as per total 300,000 units .
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