4. [13 points] Witch\'s Brew Company manufactures and sells three potions that a

ID: 2600281 • Letter: 4

Question

4. [13 points] Witch's Brew Company manufactures and sells three potions that all use gargoyle eyelashes as a xceeds the supply of gargoyle eyelashes that Witch's Brew is able to buy from its ingredient. Due to the current interest in vampires and other creatures of the supernatural the high demand for all three of these potions e suppliers, Information related to the three potions is provided below: $200 Selling Price per bottle of potion Eyelashes required per bottle Other variable production costs Fixed overhead per unit $100 $120 $105 1,800 $50 $60$69 1,000 1,500 $30 Each year, Witch's Brew is only able to buy 10,000 gargoyle eyelashes at a cost of $5 per eyelash. costs at Witch's Brew are $45,000. A. Based on these restrictions, what is the optimal product mix for Witch's Brew? Show your work to receive credit. B. What is the most Witch's Brew would pay for eyelashes, if it could find an overseas supplier? Show your work to receive credit

Explanation / Answer

Passion Potion

Luck Potion

Smart Potion

Selling price per bottle of potion (A)

100

120

200

Variable production costs (B)

105

Contribution per unit (A-B)

Eyelashes required

Contribution per eyelashes

40/2 = 20

51/3 = 17

95/5 = 19

Rank

Limiting factor = 10000 eyelashes

Brew Company should produce Passion potion firstly because Contribution per eyelashes is high in Passion potion, secondly Smart potion and thirdly Luck potion.

Maximum amount pay to overseas supplier = 20