Exercise 8-13 Sunland Co. is considering the introduction of three new products.

Question

Exercise 8-13 Sunland Co. is considering the introduction of three new products. Per unit sales and cost information are as follows Sales Variable costs Fixed costs Labor hours per unit Monthly demand in units $3.00 $1.20 $0.50 $5.00 $3.40 $1.00 $13.00 11.00 $ 3.50 1.20 hours 0.50 hours 5 hours 550 600 250 The company has only 1,800 direct labor hours available to commit to production of any new products How many of each product should Sunland Co. produce and sell to maximize its profit? (Round answers to 0 decimal places, e.g. 5,275.)

Explanation / Answer

The products with highest Contribution margin per labour hour has to be produced first to maximize profits

Product B has to be produced first

Labour hours remaing after Product B = 1,800 - 300 = 1,500

Product A has to produced later

Labour hours remaining after Product A = 1,500 - 660 = 840

Units of Product C that can be produced with the remaining labour hours = 840 / 5 = 168

A B C Selling price per unit 3 5 13 Variable cost per unit 1.2 3.4 11 Contribution margin per unit 1.8 1.6 2 Labour hours per unit 1.2 0.5 5 Contribution margin per labour hour 1.5 3.2 0.4 Monthly demand in units 550 600 250 Labour hours needed 660 300 1,250

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