Adriana Lopez has found that her line of computer desks and chairs has become ve

Question

Adriana Lopez has found that her line of computer desks and chairs has become very popular and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows.

Adriana has determined that she only has 1,015 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.

Answers in excel format would be greatly appreciated

Explanation / Answer

$625/5= $125 $175/4 = $43.75 Per hour worked on a desk, Adriana makes $125 profit. Per hour worked on a chair, Adriana only makes $43.75. It's obviously more profitable for her to sell as many chairs as possible, so that is what we do first. For Adriana to fill the expected demand of 175 desks, it requires 875 of her direct labour hours (175*5). This means that she only has 140 direct labour hours left (1015-875). Using her remaining hours, Adriana makes 35 chairs (140/4). At the sales mix of 175 desks and 35 chairs, Adriana will make (175*$625) + (35*$175) = $109,375 + $6,125 = $115,500.

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