ABC Company produces Product X, Product Y, and Product Z. All three products req
ID: 2505242 • Letter: A
Question
ABC Company produces Product X, Product Y, and Product Z. All three products require processing on specialized finishing machines. The capacity of these machines is 1,200 hours per month. ABC Company wishes to determine the product mix that should be achieved to meet the high demand for each product and provide the maximum profit. Following is information about each product:
Product X Product Y Product Z
Selling Price $100 $80 $25
Variable Costs 70 40 20
Machine time per unit 3 hours 2 hours 1 hour
Monthly demand (units) 300 200 500
Determine how the 1200 hours of machine time should be allocated to the three products to provide
the most profitable product mix.
Product X = _____ hours
Product Y = _____ hours
Product Z = ______ hours
Explanation / Answer
Contribution: X = 30, Y = 40, Z = 5
Machine hours required : X = 3* 300 = 900, Y = 2*200 = 400, Z = 1*500 = 500
Contribution per machine hour: X = 30/3 = 10, Y = 40/2 = 20, Z = 5/1 = 5
It is highest for Y, so produce max. amount of Y, then X and then Z
Y needs 400 hrs, we are left with 800 hrs, so produce 800 hrs of X