Balloon, Inc. produces three types of balloons—small, medium, and large—with the

Question

Balloon, Inc. produces three types of balloons—small, medium, and large—with the following characteristics:

The company has only 2,000 machine hours available each month.

How many units of each type of balloon should the company make to maximize its total contribution margin? (Round answers to 0 decimal places, e.g. 5,275.)

Small Medium Large Selling price per unit $5 $8 $10 Variable cost per unit 3 5 6 Contribution margin per unit $2 $3 $4 Machine hours per unit 1 2.4 3 Demand in units 500 1,000 800

Explanation / Answer

Answer:

Unit to be produced

Small

500

Medium

0

Large

500

Working notes for the above answer

Small

Medium

Large

Selling price per unit (A)

5

$8

10

Variable cost per unit (B)

3

5

6

Contribution margin per unit ( c =A-B )

2

$3

4

Machine hours per unit (D)

1

2.4

3

Contribution per machine Hour (C/D)

2

1.25

1.33

As we can see from the above calculation that Contribution per machine Hour for small balloon are higher among three type and net larg bllon and last medium balloon . So company should produced the balloon in flowing way

Small

Medium

Large

Contribution per machine Hour (C/D)

2

1.25

1.33

Demand in units

500

1000

800

Unit to be produced

500

0

500

As Contribution per machine Hour for small balloon are higher among

make first small balloon up to its demand

Small

=500 units*1machine Hour

=500 hours

Now remaining 1500 hours (2000-500) with the company now it should used for large balloon

large

=1500/3

=500 units

Now company has no remaining hours so it cannot produce medium balloon

Unit to be produced

Small

500

Medium

0

Large

500

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