Question
In: Accounting
Product Mix Decision, Single Constraint Behar Company makes three types of stainless steel frying pans. Each...
Product Mix Decision, Single Constraint
Behar Company makes three types of stainless steel frying pans. Each of the three types of pans requires the use of a special machine that has total operating capacity of 173,050 hours per year. Information on each of the three products is as follows:
| Basic | Standard | Deluxe | |
| Selling price | $11.68 | $17.78 | $34.40 |
| Unit variable cost | $6.58 | $11.72 | $16.02 |
| Machine hours required | 0.10 | 0.20 | 0.50 |
The marketing manager has determined that the company can sell all that it can produce of each of the three products.
Required:
1. How many of each product should be sold to maximize the total contribution margin? If a product should not be produced at all, enter "0" for your answer.
| Number of basic units: | |
| Number of standard units: | |
| Number of deluxe units: |
What is the contribution margin per machine hour for each of these products? If required, round your answers to the nearest cent.
| Basic units: | $ per machine hour |
| Standard units: | $ per machine hour |
| Deluxe units: | $ per machine hour |
What is the total contribution margin for this product mix?
$
2. Suppose that Behar can sell no more than 285,000 units of each type at the prices indicated. What product mix would you recommend?
| Number of basic units: | |
| Number of standard units: | |
| Number of deluxe units: |
What would be the total contribution margin?
$
Solutions
Expert Solution
1.
| Number of basic units: | 1,730,500 |
| Number of standard units: | 0 |
| Number of deluxe units: | 0 |
| Basic units: | $51.00 per machine hour |
| Standard units: | $30.30 per machine hour |
| Deluxe units: | $36.76 per machine hour |
Workings:
| Basic | Standard | Deluxe | |
| Selling price per unit $ | 11.68 | 17.78 | 34.40 |
| Less: Variable cost per unit | 6.58 | 11.72 | 16.02 |
| Contribution margin per unit $ | 5.10 | 6.06 | 18.38 |
| Machine hours required per unit | 0.10 | 0.20 | 0.50 |
| Contribution margin per machine hour $ | 51.00 | 30.30 | 36.76 |
| Ranking | I | III | II |
| Number of units to be produced (173050/0.10) | 1730500 | 0 | 0 |
Since all that can be produced can be sold of each of the three products, only the Basic type should be produced so as to maximize the total contribution.
Total contribution margin = 1730500 x $5.10 = $8,825,550
2.
| Number of basic units: | 285,000 |
| Number of standard units: | 10,250 |
| Number of deluxe units: | 285,000 |
Working:
| Basic | Standard | Deluxe | |
| Machine hours required per unit | 0.10 | 0.20 | 0.50 |
| Contribution margin per machine hour $ | 51.00 | 30.30 | 36.76 |
| Ranking | I | III | II |
| Number of units to be produced | 285000 | 10250 | 285000 |
| Machine hours required | 28500 | 2050 | 142500 |
| (285000 x 0.10) | Balance | (285000 x 0.50) |
Total contribution margin: $6,753,915
| Basic | Standard | Deluxe | ||
| Number of units | 285000 | 10250 | 285000 | |
| Contribution margin per unit $ | 5.10 | 6.06 | 18.38 | |
| Total contribution $ | 1453500 | 62115 | 5238300 | 6753915 |
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