Question

Ltd produces four modes of Air Pods as follows: Air Pods standard, Air Pods Pro, Air Pods Galaxy and Air Pods Ultra. All products go through three Departments (D1, D2 and D3) but the time needed for each product at different departments varies. Data regarding the total demand for each product, the time needed for each product in each department, selling prices, fixed and variable costs for each product as well as available capacity (in terms of time) in each department (for last month) are presented as follows:

	Air Pods standard	Air Pods Pro	Air Pods Galaxy	Air Pods Ultra
Total demand per month (units)	1,200	1,200	3,500	3,200
Selling price per unit	$120	$180	$220	$300
Unit variable cost per product as % of selling price	40%	50%	55%	60%
Unit fixed cost	$30	$15	$35	$45
Time needed in Department 1 per unit (minute)	3	3	5	4
Time needed in Department 2 per unit (minute)	5	4	4	7
Time needed in Department 3 per unit (minute)	3	4	3	5

The total time available in each department for the month is 40,003 minutes. This is the same for all three departments.

1. Assume Ltd wanted to fulfil total demand for at least three products. What would be the maximum price that Arya Corp would pay to outsource one minute of production time for each of the three departments? Assume that one minute of outsourced time increases the capacity of the relevant department by one minute.

2. Assume Ltd wanted to fulfil total demand for all products. What would be the maximum price that Arya Corp would pay to outsource one minute of production time for each of the three departments? Assume that one minute of outsourced time increases the capacity of the relevant department by one minute.

Answer 1