Johnstone Company makes 2 products: Carpet Kleen and Floor deodorizer. Operating

Question

Johnstone Company makes 2 products: Carpet Kleen and Floor deodorizer. Operating information from the previous year follows. carpet kleen units products and sold 5,000, machine hours used 5,000, sales price per unit $7, Variable cost per unit $4. Floor deodorizer units produced and sold 4,000, machine hours used 2,000, sales price per unit $10, variable cost per unit $8. Fixed costs of $20,000 per year are presently allocated equally between both products. If the product mix were to change, total fixed costs would remain the same. The contribution margin per machine hour for Floor deodorizer is?

Second part: Assuming there is unlimited demand for both products and Johnson has 10,000 machine hours available, how many units of each product should be produced and sold?

I already have the answer for the first part of the question, can someone please help with the second part of the question?

Explanation / Answer

Part B, there are 10,000 machine hours available , we have to produce units in such a way that our total contribution is maximum and also we are assuming that there is no minimum requirement of A or B that has to be produced.

Floor deodrizer should be produced for 1 machine hour can make 2 units of FD ( 2000 hours/ 4000 units)

So, 10,000 hours can make 20000 units

Total contribution = 20000 * 2 = 40000

Fixed Cost = 20000

Total profit = 20000

The above solution is based on the asumption that there is no criteria for producing minimum no of Carpet Kleen and our aim is profit maximization.

Carpet kleen Floor deodizer Sale price 7 10 Variable cost 5 8 Contribution 2 2 No of units 5000 4000 Total contribution 10000 8000 Fixed cost 10000 10000 Profit 0 -2000 Part A Total contribution 10000 8000 Machine hours 5000 2000 Contribution per machine hour 2 4 The contribution pe machine hour is higher in case Floor Deodizer, so we should use the machine hours to produce it

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.