Question
In: Accounting
Katy Company manufactures three product models, Standard, Premium, and Deluxe. The following is the data for...
Katy Company manufactures three product models, Standard, Premium, and Deluxe. The following is the data for each product per week.
|
Standard |
Premium |
Deluxe |
Total |
||
|
Maximum weekly demand (in units) |
300 |
250 |
200 |
750 |
units |
|
Current weekly production (in units) |
200 |
200 |
200 |
600 |
units |
|
Contribution margin per unit |
$40 |
$45 |
$60 |
||
|
Number of machine hours required |
2 |
3 |
5 |
||
|
Maximum Machine hours per week |
2,000 |
hours |
Required)
a) What is the contribution margin per machine hour for each model? (10 points)
b) What is the total contribution margin at the current level of production for each model? (5 points)
c) Given maximum capacity, how many units of chairs of each model to be produced to maximize profits? (5 points)
d) If there is no limit for machine hours available, how many chairs of each model should the company produce to maximize profits? (5 points)
|
Solutions
Expert Solution
| a. | |||
| Standard | Premium | Deluxe | |
| Contribution margin per unit | 40 | 45 | 60 |
| (/) Number of machine hours required | 2 | 3 | 5 |
| Contribution margin per machine hour | 20 | 15 | 12 |
| b. | |||
| Standard | Premium | Deluxe | |
| Current weekly production (in units) | 200 | 200 | 200 |
| (*) Contribution margin per unit | 40 | 45 | 60 |
| Total contribution margin | 8000 | 9000 | 12000 |
| c. | |
| For maximizing profit we will product those products first which give higher Contribution margin per machine hour | |
| Ranks | Products |
| 1 | Standard |
| 2 | Premium |
| 3 | Delux |
| Maximum machine hours per week | 2000 | |
| Hours required to satisfy the demand of Standard = 300*2 | 600 | |
| Hours required to satisfy the demand of Premium = 250*3 | 750 | |
| Total hours requied to satisfy the demand of standard and premium = 600 + 750 | 1350 | |
| Hours left for delux = Maximum machine hours per week - Total hours requied to satisfy the demand of standard and premium = 2000 - 1350 | 650 | |
| Units of delux that can be made = Hours left for delux / Machine hours per unit = 650 / 5 | 130 | units |
| Standard | Premium | Deluxe | |
| Units to be made to maximize profit | 300 | 250 | 130 |
| d. | |||
| Standard | Premium | Deluxe | |
| Units to be made to maximize profit | 300 | 250 | 200 |
ekkarill92 answered 2 years agoRelated Solutions
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