Question

ABC Company produces three products: A, B, and C. The company only has 300 labor hours per week to produce these 3 products. Product information is as follows:

   A             B             C

Unit selling price                                               140         75           240

Unit variable Costs 100         50           180

Unit contribution margin 40 25           60

Labor hours per unit    5 4              6

Maximum demand in units per week 15 20    30

What is the optimal product mix(how many A, B, and C should be produced) the company would produce for a week based on only having 300 labor hours and the demand for each product? Explain your answer and show computations.

Answer 1

Solution

Product	Units to be Produced
Product A	15
Product B	11
Product C	30

Working

Statement of ranking indicating which product to produced first, second and third
	Product
	Product A	Product B	Product C
Sales price per unit	$         140.00	$               75.00	$        240.00
Variable cost per unit	$         100.00	$               50.00	$        180.00
Contribution margin per unit	$           40.00	$               25.00	$           60.00
Labor hours per unit	5.00	4.00	6.00
Contribution margin per Labor hour	$              8.00	$                  6.25	$           10.00
Ranking	Second	Third	First
Produce	Second	Third	First

.

Statement of Optimum mix
Product	Units to be Produced	Machine hours per unit	Machine hours consumed
Product A	15	5.00	75.00
Product B	11	4.00	45.00
Product C	30	6.00	180.00
Maximum Quantity			300.00