Misbah Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell

Question

Misbah Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available Sales price Variable costs Machine hours required for one lamp Bedford Lamp 530 $18 Lowell Lamp $35 $23 4 Total fixed costs are $60,000. Marketing data indicate that the company can sell up to 8,000 units of the Bedford Lamp and up to 4,000 units of the Lowell Lamp. Machine hour capacity is 26,000 hours per year. Which product mix will deliver the optimum operating income? 0 A. 8,000 Bedford Lamps and 4,000 Lowell Lamps O B. 4,000 Bedford Lamps and 1,000 Lowell Lamps O C. 4,000 Bedford Lamps and zero Lowell Lamps D. 8.000 Bedford Lamps and 2.500 Lowell Lamps

Explanation / Answer

Calculation of optimum product mix: Particulars Bedford Lamp Lowell Lamp Sales price 30 35 Less: Variable costs 18 23 Contribution 12 12 Machine hours 2 4 Contribution per machine hour 6 3 (Bedford= 12/2, Lowell= 12/4) As the contribution per hour of Bedford Lamp is more than that of Lowell lamp so we should first produce Bedford lamp and then Lowell Lamp. Hours required to make 8000 units of bedford lamp= 8000*2= 16000 hours Balance Hours= 26000-16000= 10000 hours Lowell lamp that can be made from 10000 hours= 10000/4= 2500 Lowel Lamps So we should make 8000 Bedford Lamps and 2500 Lowell lamps So correct answer is D) 8000 Bedford Lamps and 2500 Lowell Lamps

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