Question 1 Choosing the Optimal Product Mix with One Constrained Resource Billin

Question

Question 1

Choosing the Optimal Product Mix with One Constrained Resource

Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,535 hours per year. Product Reno has a unit contribution margin of $120 and requires five hours of painting department time. Product Tahoe has a unit contribution margin of $78 and requires three hours of painting department time. There are no other constraints.

Required:

1. What is the contribution margin per hour of painting department time for each product?

2. What is the optimal mix of products? If an amount is zero, enter "0".

3. What is the total contribution margin earned for the optimal mix?
$

Explanation / Answer

Answer 1. Reno Tahoe Contribution per Unit (A)             120               78 Painting Deptt. - No of Hrs required (B)                  5                 3 Contribution Margin per hr. of Painting deptt (A/B)                24               26 Answer 2. Optical Mix of Products Units Reno                 -   Tahoe = (2535 / 3 Hrs )             845 Answer 3. Total Contribution Earned Reno - 0 Units X $120                 -   Tahoe - 845 Units X $78       65,910 Total Contribution Earned       65,910

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