XYZ Company produces two products A and B For the coming per

XYZ Company produces two products, A and B. For the coming period, 135,000 machine hours and 175,000 direct labor hours are available. Information on the two products appears below:

Product A Product B

contribution margin per unit ........... $7.00 $6.50

machine hours per unit ................. 4.00 6.00

direct labor hours per unit ............ 8.00 7.00

Calculate the number of units of Product A that should be produced in order to maximize net income.

Solution

Calculate the number of units of Product A that should be produced in order to maximize net income.

Unit under machine hour = 135000/4 = 33750 units

Unit under labour hour = 175000/8 = 21875 units

so 21875 units of Product A that should be produced in order to maximize net income.