Homework SourseHunts has 28000 labor hours available for producing A and B
Hunt’s has 28,000 labor hours available for producing A and B. Consider the following information:
A B
Required labor per unit in hours 4 2
Maximum demands in units 8,000 7,000
Contribution margin per unit $8 $7.50
What is the optimal product mix (how many A and B should be produced?) Explain your answer and show computations.
Solution
TOTAL CONTRIBUTION MARGIN
(MAXIMUM UNITS * CONTRIBUTION MARGIN)
| PARTICULAR | A | B | TOTAL |
|---|---|---|---|
| LABOUR HOUR PER UNIT | 4 HR | 2 HR | |
| MAXIMUM DEMAND(UNITS) | 8000 | 7000 | 15000 |
| TOTAL LABOUR HOURS REQUIRED | 32000 HR | 14000 HR | 46000 HR |
| TOTAL LABOUR HOURS AVAILABLE | 28000 HR | ||
| CONTRIBUTION MARGIN PER UNIT | $ 8 | $ 7.50 | |
| TOTAL CONTRIBUTION MARGIN (MAXIMUM UNITS * CONTRIBUTION MARGIN) | $64000 | $52500 | |
| TOTAL CONTRIBUTION MARGIN PER LABOUR HOUR | $64000/32000HR=$2 PER HOUR | $52500/14000HR=$3.75 PER HOUR | |
| RANK AS PER CONTRIBUTION PER HOUR BASIS | 2ND | 1ST | |
| ALLOTAMENT OF LABOUR HOURS | 28000 HRS-14000HRS=14000HRS | 7000 UNITS *2 HR=14000 HOURS | 28000 |
| UNITS TO BE PRODUCED | 14000HRS/4HRS= 3500 UNITS | 7000 UNITS | 10500 UNITS |
