What would be the profit if you made all of A C fileCN Prod

What would be the profit if you made all of A?

C | file://CN: Product A Sales price $155 Demand = 50 wk Product B 6 Sales price $115 Demand = 100 wk Assembly 5 mins/unit Assembly 10 mins/unit Machine #3 15 minsunit You have 1 each of Machine#1, #2 and #3 10 mins/unit You have 1 Assembly area Machines can (and should) Machine #1 10 mins/unit Machine #3 15 mins/unit This is an ongoing business, run based upon weckly hours, don\'t try to sequence work or figure in start up Operate 2,400 minsiwk Raw Matl Weekly averhead is $6.000

Solution

If we made all of A:

We will use 1 unit of each raw material for the 1st two lines which lead to Product A. Each of this raw material costs $20/unit.

Hence /unit cost of producing A = $40/unit of A

Machine time taken to produce A:

Machine 1 = 10 mins/unit

Machine 2 = 5 mins/unit

Assembly time = 5 mins/unit

machine 3 = 15 + 15 = 30 mins/unit

Major bottleneck comes from Machine 3.

total we have 2400 mins/week

maximum production possible of A = 2400/30 = 80 units of A

Demand of A = 50 units

Hence we need to produce 50 units of A per week.

overhead fixed cost = 6000

total cost = fixed + variable

= 6000 + units*cost/unit

= 6000 + 50*40

= 8000

Sales price = 155

total sales = 155*50 = 7750

Profit = sales - cost = 7750 - 8000 = -250

If we sell only A we make a loss of $250 per week.