In: Accounting
Product X requires 20 hours of machine time and 30 hours of skilled labor time. Product Y requires 10 hours of machine time and 20 hours of skilled labor time. The selling price is $200 for X and $260 for Y; while the variable cost per unit is $140 for X and $190 for Y. Machine capacity is only 1,150 hours per week and skilled labor time available is only 1,800 hours per week.
Required: Advice Beta Ltd on the profit-maximizing product mix. Round your answer to the lowest unit.
Product mix: Product X nil units and Product Y 90 units | ||||||
Product X | Product Y | |||||
Sales | $200 | $260 | ||||
Less: Variable cost | $140 | $190 | ||||
Contribution margin | $60 | $70 | ||||
Machine hours per unit | 20 hours | 10 hours | ||||
Contribution margin per machine hours | $3.00 | $7.00 | ||||
Rank | 2 | 1 | ||||
Skilled labor per unit | 30 hours | 20 hours | ||||
Contribution margin per skilled labor hours | $2.00 | $3.50 | ||||
Rank | 2 | 1 | ||||
Based on Machine hours & Skilled hours product Y be only produced to maximize the profit | ||||||
as the market demand for both products is very high, so there is no limit to producing Y with available hours | ||||||
and based on available Machine hours 1,150 & Skilled hours 1,800 product Y can only be produced 90 units | ||||||
Product Y | ||||||
Units | 90 | |||||
Sales ($260 x 90) | $23,400 | |||||
Less: Variable cost ($190 x 90) | $17,100 | |||||
Contribution margin | $6,300 | |||||