Question 4: Choosing the product mix when capacity is in
short supply
You have three product lines: Basic, Premium, and Supreme. You have
limited capacity of 300 machine hours. You face excess demand for
all three products (assume unlimited demand for simplicity).
Basic | Premium | Supreme | |
Price per unit | $3,600 | $8,400 | $12,000 |
Unit variable cost | $1,200 | $2,400 | $3,600 |
Machine hours per unit | 1 | 2 | 4 |
Compute the CM per unit of capacity (i.e, per machine-hour)
for each product:
Basic = $ per hour
Premium = $ per hour
Supreme = $ per hour
Which product(s) should you make?
Make all three products to take advantage of the high demandPremium only Basic onlySupreme only
How many units of each product should you make?
(enter 0 for products that you do not want to make)
Basic = units
Premium = units
Supreme = units
Hint if you get stuck: You have 300 machine hours.
Basic | Premium | Supreme | |
Selling price per unit | $3,600 | $8,400 | $12,000 |
Variable cost per unit | $1,200 | $2,400 | $3,600 |
Contribution Margin per unit (a) | $2,400 | $6,000 | $8,400 |
Machine hours per unit (b) | 1 | 2 | 4 |
Contribution Margin per machine hours (a/b) | $2,400 | $3,000 | $2,100 |
Since contribution margin per machine hour of premium is highest, hence premium only should be made.
Number of units of Premium to be made = Total machine hours/ Machine hour per unit
= 300/2
= 150
Basic = 0 units
Premium = 150 units
Supreme = 0 units
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Thanks!!!
Question 4: Choosing the product mix when capacity is in short supply You have three product...
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