Choosing the Optimal Product Mix with a Constrained Resource and a Demand Constr

Question

Choosing the Optimal Product Mix with a Constrained Resource and a Demand Constraint

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 2,460 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 $75 and requires three hours of painting department time. There are no other constraints.

Assume that only 500 units of each product can be sold.

Required:

1. What is the optimal mix of products? If required, round your answers to the nearest whole number.

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

Explanation / Answer

Answer 1. Reno Tahoe Contribution per Unit (A)             120               75 Painting Deptt. - No of Hrs required (B)                  5                 3 Contribution Margin per hr. of Painting deptt (A/B)                24               25 Ranking II I No. Of paints hrs Available          2,460 Less: Tahoe Produced - 500 Units X 3 Hrs          1,500 Balance Hrs Available             960 Less: Reno Produced (960 Hrs / 5 = 192 Units)             960 Balance Hrs Available                 -   Optical Mix of Products Units Reno 192 Tahoe 500 Answer 3. Total Contribution Earned Reno - 192 Units X $120       23,040 Tahoe - 500 Units X $75       37,500 Total Contribution Earned       60,540

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