Question

Blossom, Inc., is a small company that manufactures three versions of patio tables. Unit information for its products follows: Table A Table B Table C $ 46 $ 50 $ 64 9 2 Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 10 o uw 0.50 0.50 1.00 Required number of labor hours Required number of machine hours Blossom has determined that it can sell a limited number of each table in the upcoming year. Expected demand for each model follows: Table A Table B Table C 50,000 units 30,000 units 20,000 units Required: 1. Suppose that direct labor hours has been identified as the bottleneck resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3. 2. If Blossom has only 45,000 direct labor hours available, calculate the number of units of each table that Blossom should produce to maximize its profit. 3. Suppose that the number of machine hours has been identified as the most constrained resource. Determine how Blossom should prioritize production by rank ordering the products from 1 to 3. 4. If Blossom has only 238,000 machine hours available, calculate the number of units of each table that Blossom should produce to maximize its profit.

Answer 1

	Table A	Table B	Table C
Sales price	$          46	$          50	$          64
(-) Variable cost per unit :
Direct materials	$             8	$             9	$          10
Direct labor	$             2	$             4	$             8
Variable manufacturing overhead	$             3	$             3	$             3
Contribution margin per unit	$          33	$          34	$          43

Required 1 :
	Table A	Table B	Table C
Contribution margin per unit	$          33	$          34	$          43
(/) Required number of labor hours per unit	0.50	0.50	1.00
Contribution margin per labor hour	$          66	$          68	$          43
Now Based on Contribution margin per labor hour, we will give the ranking

Product	Ranking
Table A	2
Table B	1
Table C	3

Required 2 :
	Table A	Table B	Table C
Expected demand in units	50000	30000	20000
(*) Required number of labor hours per unit	0.50	0.50	1.00
Total labor hours required	25000	15000	20000

Total direct labor hours available	45000
First the company will produce Table B, then Table A and then Table C.
Labor hours used for Table B and Table A = 15000 + 25000	40000
Labor hours left for Table C = Total direct labor hours available - Labor hours used for Table B and Table A = 45000 - 40000	5000
Units of Table C that can be produced = Labor hours left for Table C / Required number of labor hours = 5000 / 1.00	5000	units

Product	Units produced
Table B	30000
Table A	50000
Table C	5000

Required 3 :
	Table A	Table B	Table C
Contribution margin per unit	$          33	$          34	$          43
(/) Required number of machine hours	4.00	2.50	2.00
Contribution margin per machine hour	$             8	$          14	$          22
Now Based on Contribution margin per machine hour, we will give the ranking

Product	Ranking
Table A	3
Table B	2
Table C	1

Required 4 :
	Table A	Table B	Table C
Expected demand in units	50000	30000	20000
(*) Required number of labor hours per unit	4.00	2.50	2.00
Total labor hours required	200000	75000	40000

Total machine hours available	238000
First the company will produce Table C, then Table B and then Table A.
Machine hours used for Table C and Table B = 40000 + 75000	115000
Machine hours left for Table A = Total machine hours available - Machine hours used for Table C and Table B = 238000 - 115000	123000
Units of Table A that can be produced = Machine hours left for Table A / Required number of Machine hours per unit = 123000 / 4.00	30750	units

Product	Units produced
Table C	20000
Table B	30000
Table A	30750