Question

XYZ Company produces three products, A, B, and C. XYZ's plant capacity
is limited to 230,000 machine hours per year. The following information
is available for planning purposes:

                                    Product A       Product B       Product C
demand for next year .............  100,000 units   140,000 units   180,000 units
selling price per unit ...........    $21             $24             $25
variable costs per unit ..........    $16             $17             $21

It takes 0.70 machine hours to produce one unit of Product A; 0.80 machine
hours to produce one unit of Product B; and 0.50 machine hours to produce
one unit of Product C.

Calculate the number of units of Product A that XYZ Company should produce
in order to maximize its net income.

Answer 1

Number of units of A that should be produced is 40000.

Producing 40000 units of A, 140000 units of B and 180000 units of C gives highest profit.

Statement of ranking indicating which product to produced first, second and third
	Product
	A	B	C
Sales price per unit	$   21.00	$ 24.00	$ 25.00
Variable cost per unit	$   16.00	$ 17.00	$ 21.00
Contribution margin per unit	$     5.00	$    7.00	$     4.00
Machine hour per unit	0.70	0.80	0.50
Contribution margin per machine hour	$     7.14	$    8.75	$     8.00
Ranking	III	I	II

Statement of Optimum mix
Product	Units to be Produced	Machine hours per unit	Machine hours consumed
B (Rank I)	1,40,000	0.80	112000.00
C (Rank II)	1,80,000	0.50	90000.00
A (Rank III)	40,000	0.70	28000.00
Maximum Quantity			230000.00