ABC Company produces Product X, Product Y, and Product Z. All three products req
ID: 2523962 • 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 2,250 hours per month. ABC Company wants 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:
Required:
Determine how the 2,250 hours of machine time should be allocated to the three products to provide the most profitable product mix. (Do not round intermediate calculations.)
Product X Product Y Product Z Selling price $ 150 $ 118 $ 39 Variable costs 105 58 28 Machine time per unit 3 hours 3 hours 1 hour Monthly demand (units) 460 290 740Explanation / Answer
Product Y has the highest contribution per machine hour. So, all the demand of product Y will be met first and so required machine hours have been allocated to product Y first
Remaining machine hours will be then allocated to product X first as it is having the second ranking in terms of contribution per machine hour. After that if something remains, then that will be allocated to product Z
Calculations Product X Product Y Product Z A Selling price $ 150 $ 118 $ 39 B Variable costs 105 58 28 C = A - B Contribution 45 60 11 D Machine time per unit 3 hours 3 hours 1 hour E = C / D Contribution per machine hour 15 20 11 F = Highest to lowest E Ranking 2 1 3 G Monthly demand (units) 460 290 740 H = G x D Hours required to meet monthly demand 1380 870 740 I = Allocation based on ranking Allocation of time 1380 870 0 Calculation 2250-870 870 0