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 $ 51 $ 55 $ 69 11 12 10 Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Required number of labor hours Required number of machine hours 0.50 4.00 0.50 2.50 1.00 2.00 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 25,000 units 25,000 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 50,000 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 243,000 machine hours available, calculate the number of units of each table that Blossom should produce to maximize its profit.

Answer 1

Ranking will be based on contribution margin per unit of constraint i.e. direct labor hour
	Table A	Table B	Table C
Sales price	51	55	69
Direct material	10	11	12
Direct labor	2	4	8
Variable manufacturing overhead	4	4	4
Contribution Margin per unit	35	36	45
Labor hours per unit	0.5	0.5	1
Contribution Margin per labor hour	70	72	45
Rank	2	1	3
Production Schedule
Product	Units	Labor hours per unit	Total labor hours
Table A	50,000	0.5	25,000
Table B	25,000	0.5	12,500
Table C	12,500	1	12,500
		Total	50,000
	Table A	Table B	Table C
Sales price	51	55	69
Direct material	10	11	12
Direct labor	2	4	8
Variable manufacturing overhead	4	4	4
Contribution Margin per unit	35	36	45
Machine hours per unit	4	2.5	2
Contribution Margin per machine hour	8.75	14.4	22.5
Rank	3	2	1
Production Schedule
Product	Units	MAchine hours per unit	Total labor hours
Table A	32,625	4	130,500
Table B	25,000	2.5	62,500
Table C	25,000	2	50,000
		Total	243,000