Donto Company produces two models of buckets, Tonto and Pronto. Information rega

Question

Donto Company produces two models of buckets, Tonto and Pronto. Information regarding these products for May follows: Tonto Pronto Number of units 3,000 7,000 Sales revenue $120,000 $140,000 Variable costs 60,000 42,000 Fixed costs 24,000 50,000 Net Income $36,000 $48,000 Pounds of plastic to produce one bucket 4.0 1.6 Contribution margin per unit $20 $14 Due to increased demand of plastic in the market, Donto Company can obtain only 9,000 pounds of plastic per month. Donto can sell as many buckets as it can produce of either model. How many of each model should Donto produce to maximize profit in May considering the constraint?

Explanation / Answer

Total production possible is limited to 9000 pounds of plastic Calcultion of contribution per ppounds of plastic required for both products we get Particulars Tonto Ponto Contribution margin per unit $20 $14 Pounds of plastic required for on bucket 4.0 1.6 Contribution per pound of plastic (20/4.0,14/1.6) $5 $8.75 Hence the maximum of Ponto can be produced = 9000/1.6 = 5625 units Hence 5625 units of Ponto and 0 units of tonto are to be produced as no bar on sales

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