The following diagram shows the flow process, raw material costs, and machine pr

ID: 377932 • Letter: T

Question

The following diagram shows the flow process, raw material costs, and machine processing time for three products: A, B, and C. There are three machines (W, X, and Y) used in the production of these products; the times shown are in required minutes of production per unit. Raw material costs are shown in cost per unit of product. The market will take all that can be produced.

Assuming that sales personnel are paid on a commission basis, which product should they sell?

On the basis of maximizing gross profit per unit, which product should be sold?

To maximize total profit for the firm, which product should be sold?

$55 $60 $75 Selling Price Y 3 min. Y 6 min. X 4 min. $10 $15 $10 W 2 min. X 5 min. Y 6 min $15 $20 $20 X 1 min. W 2 min. W 5 min. $10 $15 $30

Explanation / Answer

Ans :

Contribution per unit

A - [55-( 10+15+10)] = 20

B - [ 60- (15+20+15)] =10

C - [ 75-(10+20+30)] =15

Processing time

A- 3+2+1 =6

B - 6+5+2 =13

C- 4+6+5 =15

If the variable processing cost is m per unit time. the profit values per unit

A - 20-6m

B- 10-13m

C- 15-15m

Ans a- The commission based sales will be most beneficial for salesman in case of product C, that has highest selling price.

Ans b- For maximization of gross profit per unit, A is the suitable product, because it has highest contributon per unit.

Ans c- For maximization of total profit for the firm, A is the most lucrative product as it is cheapest to produce and has highest contribution margin.

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The following diagram shows the flow process, raw material costs, and machine pr

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The following diagram shows the flow process, raw material costs, and machine pr

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