Product Mix Decisions Calen Company manufactures and sells three products in a f
ID: 2437118 • Letter: P
Question
Product Mix Decisions
Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another.
Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs.
Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months.
Calen believes that the monthly demand for the next six months will be as follows:
Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows:
Required:
1. Calculate the monthly requirement for machine hours and direct labor hours for producing Products 401, 402, and 403.
Which departments can meet the monthly sales demand?
All departments except for department 3
Product Mix Decisions
Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another.
Calen's management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs.
Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months.
Calen believes that the monthly demand for the next six months will be as follows:
Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows:
Required:
1. Calculate the monthly requirement for machine hours and direct labor hours for producing Products 401, 402, and 403.
Which departments can meet the monthly sales demand?
All departments except for department 3
2. Determine the quantities of 401, 402, and 403 that should be produced monthly to maximize profits. Prepare a schedule that shows the contribution to profits of your product mix.
3. Assume that the machine hours available in Department 3 are 1,500 instead of 2,700. Calculate the optimal monthly product mix using the graphing approach to linear programming.
Prepare a schedule that shows the contribution to profits from this optimal mix. (CMA adapted)
Department Monthly Capacity 1 2 3 Labor hours available 3,700 4,500 2,750 Machine hours available 3,000 3,100 2,700 1,600 ? 1400 1,200 1,000 800 - 000 - 400 200 B. 0 100 200 300 400 500 600 700800900 1,000Explanation / Answer
1) Products 401 402 403 Monthly Demand 500 units 400 units 1000 units Labour Hrs. req Deptt 1 2 1 2 Deptt 2 3 2 2 Deptt 3 3 - 2 Labour Hrs per unit 8 3 6 Total Hrs 4000 1200 6000
Machine Hrs. Req Deptt 1 1 1 2 Deptt 2 1 1 2 Deptt 3 2 - 1 Machine hrs per unit 4 2 5 Total Machine Hrs. 2000 800 5000
Requirement Available
Deptt 1 Labour Hrs 3400 3700
Deptt 1 Machine hrs 2900 3000
Deptt 2 Labour Hrs 4300 4500
Deptt 2 Machine Hrs 2900 3100
Deptt 3 Labour Hrs 3500 2750(Shortage)
Deptt 3 Machine hrs 2000 2700
Department 3 has Labour hours Shartage to meet the Monthly Sales Demand
2) Statement Showing Ranking for the Best Product Mix on Scarcity of resource (Deptt 3 Labour Hrs)
Products 401 402 403 Contribution per unit (196-118)= 78 (123-83)=40 (167-129)=38 Labour hrs of Deptt 3 3 - 2 Contribution per labour hr 78 / 3 = 26 - 38 / 2 = 19 Ranks I II
From the finding of question 1 it has been concluded that Labours hrs of Deptt 3 are in shortage, so Calen company should use those limited Labour hrs in the manufacturing of product providing higher contribution. As provided in the above table product 401 has better contribution on using 1 hr of Labour
So Calen Company Should Produce Product 401 & 402 in Full required demand and use the remaing labour hrs of deptt 3 in production of Product 403
Hence Labour hrs available for Possible Production of Product 403 in such scenario will be 2750 - (500 units of product 401 * 3hrs) = 1250 hrs (Remaining) So 1250hrs / 2hrs = 625 Units of 403 should be produced to earn the Best Profit Mix
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