Michigan Mfg. makes electronic products. Because the employees of one of the com
ID: 2434894 • Letter: M
Question
Michigan Mfg. makes electronic products. Because the employees of one of the company's plants are on strike, the Chicago plant isoperating at peak capacity. It makes two electronic products: MP3 players and PDAs. Presently, the company can sell as many of each product as can be made, but making a PDA takes twice as long in production labor time as an MP3 player. The company's production capacity is 100,000 labor hours per month. Data on each product are as follows:MP3 players PDAs
Sales $70 $108
Variable costs (58) (88)
Contribution margin $12 $20
Labor hours required 1 2
Fixed costs are $240,000 per month.
a. How many of each product should the Chicago plant make? Explain your answer.
b. What qualitative factors would you consider in making this product mix decision?
Explanation / Answer
Let a be the number of MP3 players produced Total number of hours required - 1 * a Hours remaining for DVD player - (100,000 - a ) Also 100,00 - a = 2a Solving this equation, we get a= 33,333 Hence, 33,333 MP3 players can be produced Since , DVD players require double the time , 33,333/ 2 or 16,667 DVD players can be produced. Hence, the number of MP3 players =33,333 and Number of DVD players = 16,667