Question

Santana Rey has found that Business Solutions's line of computer desks and chairs has become very popular, and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows. Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Expected demand for next quarter Desks $1,157.50 510.00 $ 647.50 5 hours 172 desks Chairs $422.00 240.00 $182.00 4 hours 45 chairs Santana has determined that she only has 984 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available. Required: Determine the optimal sales mix and the contribution margin the business will earn at that sales mix. (Round per unit amounts to 2 decimal places.) Desks Chairs Contribution margin per unit Direct labor hours per unit Contribution per direct labor hour Desks Chairs Total 172 45 Maximum number of units to be sold Hours required to produce maximum units For most profitable sales mix Chairs Total Desks 1,162 Hours dedicated to the production of each product 210 984 Units produced for most profitable sales mix Contribution margin per unit Total contribution margin

Answer 1

	Desk	Chairs
Contribution margin per unit	$647.50	$182
Direct labor hours per unit	5	4
Contribution per direct labour hour	$129.50	$45.50
	Desk	Chairs	Total
Maximum number of units to be sold	172	45
Hours required to produce maximum units	860	180
For most profitable sales mix
	Desk	Chairs	Total
Hours dedicated to the production of each product	860	124	984
Units produced for most profitable sales mix	172	31
Contribution margin per unit	$647.50	$182
Total contribution margin	$111,370	$5,642	$117,012