Question

Healthier Living Company manufactures two products, toaster ovens and bread machines. The following data are available:

	toaster ovens	bread machines
sales price	$80	$150
variable costs	$40	$100

Healthier Living can manufacture six toaster ovens per machine hour and four bread machines per machine hour. Healthier Living's production capacity is 1,800 machine hours per month. Marketing limitations indicate that Healthier Living can sell a maximum of 5,000 toasters a month, and 4,000 bread machines per month. Which product and how many units should the company produce in a month to maximize profits? Please show all your work.

Answer 1

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Healthier Living Company
Machine Hour per unit
Product	Toaster ovens	Bread machines
Number of units in 1 hour	6.00	4.00		A
Machine Hour per unit	0.17	0.25		B=1/A
Contribution margin per machine hour	Toaster ovens	Bread machines
Selling price per unit	80.00	150.00		C
Variable cost per unit	40.00	100.00		D
Contribution per unit ($)	40.00	50.00		E=C-D
Machine Hour per unit	0.17	0.25		As per B
Contribution per machine hour ($)	240.00	200.00		F=E/B
For optimal utilization of machine product will be produced first whose contribution per hour is highest.
	Toaster ovens	Bread machines	Total
Contribution per direct labor hour	240.00	200.00		See F
Rank	1	2
Machine hours available		1,800.00		G
Demand for Toaster ovens	5,000.00			H
Machine hours for Toaster ovens		833.33		I=H*B
Machine hours available		966.67		J=G-I
Machine hour per unit of Bread Machines		0.25		See B
Number of units of Bread Machines		3,866.67		K=J*B
Contribution statement	Debbie	Trish	Total
Contribution per unit ($)	40.00	50.00		See E
Number of units	5,000.00	3,866.67		See K,H
Contribution ($)	200,000.00	193,333.33	393,333.33	Multiply above
So highest total contribution margin company can earn is $ 393,333.33.