Slavin Corporation manufactures two products, Alpha and Delta. Each product requ
ID: 2596117 • Letter: S
Question
Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 160 units (each) monthly. Slavin is currently producing 110 Alphas and 110 Deltas each month. Cost and machine-usage data for the two products are shown in the following table, which Slavin managers use for planning purposes: P Flag question Alpha Delta Total $ 123 150 Less variable costs per unit 17.5 23.5 16 32.5 35.5 19 Overhead $ 66 $ 63 Fixed costs Manufacturing Marketing and administrative $7,500 $4,500 $12,000 2.0 2.5 Machine hours per unit Machine hours used Machine hours available Quantity produced 495 500 110 160 $ 2,190 110 160 tion 19Explanation / Answer
1.
Product-A has higher contribution margin ($66) than product-B ($63). Therefore, maximizing profit could be availed if product-A reaches its full demand within its capacity of production.
Since the full demand is 160 units of each product, the company should produce 160 units of product-A.
Answer: Product-A = 160 units
2.
If product-A has 160 units of production, it uses machine hours as below:
Machine hours used by product-A = Hours per unit × Number of units
= 2 × 160
= 320 hours
Remaining hours = Maximum hours – Hours used by product-A
= 500 – 320
= 180 hours
Such remaining hours should be utilized by product-B.
Number of units of product-B = Remaining hours / Hours per unit
= 180 / 2.5
= 72 units
Answer: Product-B = 72 units
3.
Monthly profit as per (a):
Heads
Product-A
Product-B
Total
Contribution per unit (C)
$66
$63
Quantity (Q)
160
72
Total contribution (C × Q)
10,560
4,536
15,096
Less: Fixed cost
7,500
Manufacturing
4,500
Profit
3,096
Increasing profit = 3,096 – 2,190
= $906 (Answer)
Note: Marketing and administrative cost should not be considered here, since these are financial.
Heads
Product-A
Product-B
Total
Contribution per unit (C)
$66
$63
Quantity (Q)
160
72
Total contribution (C × Q)
10,560
4,536
15,096
Less: Fixed cost
7,500
Manufacturing
4,500
Profit
3,096
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