Question

ABC Company produces Product X, Product Y, and Product Z. All three products require processing on specialized finishing machines. The capacity of these machines is 2,130 hours per month. ABC Company wants to determine the product mix that should be achieved to meet the high demand for each product and provide the maximum profit. Following is information about each product: Product X Product Y Product Z Selling price $ 149 $ 121 $ 35 Variable costs 104 60 27 Machine time per unit 3 hours 3 hours 1 hour Monthly demand (units) 430 280 755

Determine how the 2,130 hours of machine time should be allocated to the three products to provide the most profitable product mix. (Do not round intermediate calculations.)

Answer 1

	Product X	Product Y	Product Z
Selling price (i)	149	121	35
Variable cost (ii)	104	60	27
Contribution margin per unit (iii) = (i) - (ii)	45	61	8
Machine time per unit (iv)	3 hours	3 hours	1 hour
Contribution margin per machine hour (iii)/(iv)	$15	$10.3333	$8
Rank	1	2	3

Since contribution margin per machine hour is maximum in case of product X, hence product X will be produced to the maximum possible extent. From the remaining machine hours, then product Y will be produced to the maximum possible extent and finally from the remainder machine hours, product Z will be produced.

Machine hours used in production of product X = 430 x 3

= 1290

Machine hours used in production of product Y = 280 x 3

= 840

Remaining machine hours = 2130 - 1290 - 840

= 0

Since after production of product X and Y, no machine hours are left, hence there will be no production of product Z

Sales mix table

	Product X	Product Y	Product Z
Production	430 units	280 units	0