Question

2. ShopStarwars produces and sells two products the Darth Vader (DV) toaster and the Death Star (DS) cookies jar. Each unit of DS requires 9 minutes of direct labour and 12 minutes of machine processing. The DV requires 18 minutes of direct labour and 12 minutes of machine processing. ShopStarwars has a total of 3,000 direct labour hours available and 2,500 machine hours available Darth Vader toaster (DV) Death Star cookies jar (DS) $4 S6 $3 DM DL Variable MOH Fixed MOH Selling price $2.5 $2 $20 $1.5 $1.5 $12 equirements: 1. What is the optimum production plan to maximize ShopStarwars' total contribution margin for the next period? 2. Would the production plan determined in 1) be unchanged if we knew that the demand was estimated to be 5,000 units of DV and 5,000 units of DS in the next period? Justify your answer

Answer 1

Solution to this problem is attached below

SHOPSTARWARS 1 Statement of Ranking of Product to be Produced Darth Vader Toaster (DV) Death Star Cookies Jar(DS) Particulars Selling Price Less DM 20.00 $ $ 12.00 $ 3.00 4.00$ DL $ 6.00 $ 3.00 Variable MOH 2.50 $ 1.50 Contribution per unit $ 7.50 $ 4.50 Direct Labour Hours Available = 3000 Direct Labour Hours DL per unit Required 9m 18m or In hours 0.15 0.30 50.00 $ Contribution per hour $ 15.00 Rank 2 1 Also, Machine Hours Available = 2500 Machine Hours MH per unit required 12m 12m or In hours 0.20 0.20 Contribution per hour 37.50 $ $ 22.50 Rank 1 2 As per above calculation, it is quite clear that for both the constraint i.e Direct Labour hours& machine hours, Darth Vader Toaster is the highest contibution generating product. So with the available resources, Product DV must be produced to maximize the overall contribution.

Statement of Possible Production of DV With 3000 Direct Labour Hours, we can produce 3000/0.15hr = 20000 units However with 2500 Machine Hours, we can produce 2500/.20hr 12500 units So Only 12500 units of Product DV can be produced 93,750.00 Total Contribution Earned $

2 If Demand for the Next period is estimated to be 5000 units of DV and 5000 units of DS, then Statement of Contribution DV DS Units 5000 5000 7.50 $ Contribution per unit 4.50 22,500.00 Contribution 37,500.00 $ Overall Contribution 60,000.00 Note: Contribution earned by company on Producing 93,750.00 $ 12500 units of Darth vader Toaster Contribution earned by company on Producing 60,000.00 5000 units of DV along with 5000 units of DS 33,750.00 $ Loss of contribution Hence Production plan determined in 1) must be unchanged.