Slavin Corporation manufactures two products, Alpha and Delta. Each product requ

Question

Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 150 units (each) monthly. Slavin is currently producing 110 Alphas and 110 Deltas each month. Cost and machine-usage data for the two products is shown in the following spreadsheet, which Slavin managers use for planning purposes: How many Alphas and Deltas should the company produce each month to maximize monthly profit? If the company produces at the level found in requirement (a), how much will monthly profit increase over the current production schedule?

Explanation / Answer

CONTRIBUTION MARGIN PER LIMITING FACTOR (I;E MACHINE HOUR)

AS FROM THE ABOVE TABLE IT IS CLEAR THAT ALPHA GIVES MORE CONTRIBUTION MARGIN PER LIMITING FACTOR I;E MACHINE HOUR, SO PRODUCE THE FULL DEMAND UNITS I;E 150 UNITS OF ALPHA AND WITH THE BALANCE MACHINE HOUR PRODUCE DELTA.

B./

CONTRIBUTION MARGIN FROM ALPHA (150 * $60) = $9000

CONTRIBUTION MARGIN FROM ALPHA (80 * $64) = $5120

TOTAL CONTRIBUTION MARGIN = $14120

LESS FIXED COST

MANUFACTURING COST = ($8000)

MARKETING AND ADMINISTARTIVE = ($5000)

PROFIT = $1120

OLD PROFIT = ($640)

INCEREASED PROFIT = $480

CONTRIBUTION MARGIN PER UNIT HOUR PER UNIT CONTRIBUTION MARGIN PER HOUR ALPHAS ($60) 2 $30 DELTAS ($64) 2.5 $25.6

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