XYZ Company produces three products, A, B, and C. XYZ\'s plant capacity is limited to 48,000 machine hours per year. The following information is available for planning purposes: Product A Product B Product C demand for next year ............. 24,000 units 25,000 units 12,000 units selling price per unit ........... $80 $120 $160 direct material cost per unit .... $24 $ 21 $ 38 direct labor cost per unit ....... $18 $ 50 $ 38 variable overhead cost per unit .. $22 $ 25 $ 54 It takes 0.80 machine hours to produce one unit of Product A; 1.25 machine hours to produce one unit of Product B; and 1.60 machine hours to produce one unit of Product C. Assume that XYZ Company can work its plant overtime for 8,000 additional machine hours. Overtime premiums will add 50% to direct labor costs. Calculate the total number of units of Product C that XYZ Company should produce in order to maximize its net income.
CALCULATION OF CONTRIBUTION PER MACHIENE HOURS PER UNIT Product A Product B Product C Selling Price Per unit (A) 80 120 160 Less: Variable Costs Direct Material Cost Per unit 24 21 38 Direct Labour Cost per unit 18 50 38 Variable Overhead Cost per unit 22 25 54 Total Variable Cost (B) 64 96 130 contribution (A-B = C) 16 24 30 Machiene Hours required per units (D) 0.8 1.25 1.6 Contribution per unit per hours =(C/D) 20 19.2 18.75 Ranking on the basis on machine hours contribution 1st 2nd 3rd Production shedule be on the basis of Merit of contribution of machiene hours Units Hours RequiredPEr units Total Hours Required for production total Hours Available For Production Balance Hours Product A = 24000 0.8 19200 56000 36800 Product B = 25000 1.25 31250 36800 5550 Product C = 3469 1.6 5550 5550 0 Answer = total number of units for product C = 3469 Units Note: Avalable hours = 48,000 Machiene Hours + 8000 addittional machiene hours Avalable hours = 56,000 Machiene Hours
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