Question

Blossom, Inc., is a small company that manufactures three versions of patio tables. Unit information for its products follows:

		Table A		Table B		Table C
Sales price		$	45	$	49	$	63
Direct materials			8		9		10
Direct labor			1		3		7
Variable manufacturing overhead			3		3		3
Fixed manufacturing overhead			4		4		4
Required number of labor hours			0.50		0.50		1.00
Required number of machine hours			4.00		2.50		2.00

Blossom has determined that it can sell a limited number of each table in the upcoming year. Expected demand for each model follows:

Table A	50,000	units
Table B	30,000	units
Table C	20,000	units

Required:
1. Suppose that direct labor hours has been identified as the bottleneck resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3.
2. If Blossom has only 45,000 direct labor hours available, calculate the number of units of each table that Blossom should produce to maximize its profit.
3. Suppose that the number of machine hours has been identified as the most constrained resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3.
4. If Blossom has only 237,000 machine hours available, calculate the number of units of each table that Blossom should produce to maximize its profit.

I am really stuck on this problem, especially on Req 4. If there could be an explanation of how you got your answers that would be so helpful!

Answer 1

1)

	A	B	C
Sales price [A]	45	49	63
less:variable expense
Direct material	8	9	10
Direct labor	1	3	7
Variable manufacturing overhead	3	3	3
Total variable cost [B]	(12)	(15)	(20)
contribution margin [A-B]	33	34	43
Direct labor hours per unit	.50	.50	1
Contribution per DLH	33/.50 =$ 66	34/.50= 68	43/1=43
Ranking based on highest contribution per DLH (Constraint resoruce)	2	1	3

2)

Product	Number of Units of each product	Hours used (units produced*hours per unit)	Hours available (Hours available-hours used)
B	30000	30000*.50=15000	45000-15000= 30000
A	50000	50000*.50=25000	30000-25000=5000
C	5000	5000	0

For product C ,manufacturing of 20000 units requires 20000*1 = 20000Direct labor hours however only 5000hours are available .Thus hours used for manufacturing of product C is only 5000 Hours so unit manufactured = 5000 hours /1 hour per unit = 5000 units

	Units produced
A	50000
B	30000
C	5000

3)

	A	B	C
Sales price [A]	45	49	63
less:variable expense
Direct material	8	9	10
Direct labor	1	3	7
Variable manufacturing overhead	3	3	3
Total variable cost [B]	(12)	(15)	(20)
contribution margin [A-B]	33	34	43
machine hours per unit	4	2.5	2
Contribution per MH	33/4=8.25	34/2.5=13.6	43/2=21.5
Ranking based on highest contribution per MH(Constraint resoruce)	3	2	1

4)

Product	Number of Units of each product	Hours used (units produced*hours per unit)	Hours available (Hours available-hours used)
C	20000	20000*2=40000	237000-40000= 197000
B	30000	30000*2.5= 75000	197000-75000= 122000
A	30500	122000	0

For product A ,manufacturing of 50000 units requires 50000*4 = 200000 machine hours however only 122000hours are available .Thus hours used for manufacturing of product A is only 122000 Hours so unit manufactured = 122000 hours /4hour per unit = 30500units

	Units produced
A	30500
B	30000
C	20000