6. Bobbie Company produces three products. The manufacture of these products is

Question

6. Bobbie Company produces three products. The manufacture of these products is partially automated. Total available labor hours are 1,000 hours. Time requirements and contribution margins per unit for each product are as follows: Product X ProductY Product Z Labor hours per unit Contribution margin per unit $20 $15 $6 Required a. Which product or products would you produce assuming the 1,000 labor hours and that you can sell everything you b. make? What is the maximum amount of contribution margin you can earn with 1,000 labor hours? How would your answer in a change if you must sell at least 50 units of Product Y? c.

Explanation / Answer

a Product X Product Y Product Z Contribution margin per unit 20 15 6 Labor hours per unit 5 6 2 Contribution margin per labor hour 4 2.5 3 Product X should be manufactured as it provided highest contribution margin per labor hour b Maximum amount of contribution margin = 1000*4 = $4000 c Labor hours for Product Y = 50*6=300 Labor hours for Product X = 1000-300=700 Maximum amount of contribution margin = (700*4)+(300*2.5)= $3550

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