Question

Lie Around Furniture manufactures two​ products: Couches and Beds.

The following data are​ available: Couches Beds Sales price $ 510.00 $ 710.00 Variable costs $ 370.00 $ 395.00

The company can manufacture 3 couches per machine hour and 2 bed per machine hour. The​ company's production capacity is 2 100 machine hours per month. To maximize​ profits, what product and how many units should the company produce in a​ month?

Answer 1

4,200 units of Beds will be produced.

The​ company's production capacity is 2 100 machine hours per month.
It means machine hours is limited to the company.
When any company has limited resource, the company will produce that units whose contribution margin per limiting factor is higher.
Production of units is calculated as follows:
		Couches		Beds
Sales price per unit		$        510		$        710
Variable cost per unit		$        370		$        395
Contribution margin per unit		$        140		$        315
Machine hour per unit		0.33		0.50
		(1/3)		(1/2)
Contribution margin per machine hour		$ 420.00		$ 630.00
Ranking		II		I
Now production from 2100 machine hours will be as follows:
		Machine hours distribution		Balance hours
Beds		2,100		0
So, production of beds from all machine hours					=	Machine hours	/	Machine hour per unit
					=	2,100	/	0.50
					=	4,200