Buzz Appliances manufactures two products: Food Processors and Espresso Machines. The following data are available:
Food Processors |
Espresso Makers |
|
Sales price |
$125 |
$265 |
Variable costs |
$50 |
$170 |
The company can manufacture either two food processors per machine hour or three espresso machines per machine hour. The company's production capacity is 1,400 machine hours per month.
The company has demand of 2,700 espresso machines. How many espresso machines and food processors should they produce based on demand and available machine hours?
A.
900 espresso machines and 500 food processors
B.
2,700 espresso machines and 500 food processors
C.
2,700 espresso machines and 0 food processors
D.
2,700 espresso machines and 1,000 food processors
Food Processors |
Espresso Makers |
|
Sales price |
$125 |
$265 |
Variable costs |
$50 |
$170 |
Contribution margin per unit | $75 | $95 |
Machine hour per unit | 0.5 | 1/3 |
Contribution margin per Machine hour | 75/0.5 = $150 | 95 x 3 = $285 |
Since Contribution margin per Machine hour is higher for Espresso Makers, hence Espresso Makers will be made to the maximum possible extent and from remaining machine hours, Food Processors will be made.
The company has demand of 2,700 espresso machines
Machine hours used in making 2,700 espresso machines = 2,700 x 1/3
= 900 hours
Remaining machine hours = 1,400 - 900
= 500 hours
Production of Food Processors = 500/0.5
= 1,000
Hence, correct option is (D) i.e. 2,700 espresso machines and 1,000 food processors
Please ask if you have any query related to the question. Thank you
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