Santana Rey has found that Business Solutions’s line of computer desks and chair

Question

Santana Rey has found that Business Solutions’s 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.

Chairs S 375 200 S 175 Desks $1,125 Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Expected demand for next quarter 500 S 625 5 hours 175 desks 4 hours 50 chairs Santana 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 Requirec Determine the optimal sales mix and the contribution margin the business will earn at that sales mix. (Round per unit amounts to 2 decimal places.)

Explanation / Answer

Desks Chairs Contribution margin per unit 625 175 Divide: Labour hour per unit 5 4 Contribution margin per DLH 125 43.75 Desk Chair Total Maximum Demand 175 50 Hours required to produce 875 200 1075 For most Profitable mix: Desk Chair Total Hours dedicated to production 875 140 1015 Units producced for most profitable mix 175 35 Contribution margin per unit 625 175 Total contribution margin 109375 6125 115500

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