A company sells two products with information as follows $11.00 $20.00 Sales pri

Question

A company sells two products with information as follows $11.00 $20.00 Sales price per unit Variable cost per unit $1000 $10 00 The products are machine made. Four units of product A can be made with one machine hour and two units of product B can be made with one machine hour. The company has a maximum of 3,000 machine hours available per month The company can sell up to 18,000 units of product A per month and up to 3,000 units of product B for the month What is the optimum product mix to maximize the company's operating income? OA. zero units of A and 3,000 units of B OB 6.000 units of A and 3,000 unts of 8 C 1500 units of A and 36 000 units of B D 8.000 units of A and zero units of B to select your answer O Type here to search

Explanation / Answer

Solution 1:

Product B is to be made at its maximum because it has higher margin per machine hour.

Maximum units of product B = 3000 unit

Remaining machin hours = Total machine hours - Machine hours used in making 3000 units of B

= 3000 - (3000/2) = 3000 - 1500 = 1500 hours

units of product A from remaining 1500 hours = 1500*4 units per hour = 6000 units

Hence correct answer is "6000 units of Product A and 3000 units of Product B".

Hence option "B" is correct.

Solution 2:

A company is a price taker when it operates in a highly competitive market.

Hence option "B" is correct.

Product A Product B Sale price per unit $11.00 $20.00 variable costs per unit $10.00 $10.00 Contribution Margin per unit $1.00 $10.00 Units made per Machine Hour 4 2 Contribution margin per machine hour (Contribution margin per unit*units per hour) $4.00 $20.00 Priorty II I

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