Question

Assume that a company currently produces two models of automotive throttle bodies (Throttle Body A and Throttle Body B). You currently have 9,000 hours of aluminum casting capacity. Considering the following sales volume demanded, average Selling Price, and Unit Variable Cost characteristics, make a recommendation for the profit-maximizing product mix of Throttle Body A and Throttle Body B (Please use the template provided):

Throttle Body A	Throttle Body B
Selling price per unit	$                16.00	$                24.00
Variable cost per unit	$                12.50	$                19.00
Units per Casting hour	50	20
Quantity Demanded	300,000	90,000

Template

Data:
	Throttle Body A	Throttle Body B
Selling price per unit	$                       16.00	$                       24.00
Variable cost per unit	$                       12.50	$                       19.00
Units per Casting Hour	50	20
Quantity Demanded	300,000	90,000
Total Casting Hours Required to satisfy Demand
Aluminum Casting Capacity =	9,000	Hours
Calculate Profit-maximizing Product Mix:
	Throttle Body A	Throttle Body B
Contribution Margin per unit
Contribution Margin per Casting Hour
Planned Production Volume
Total Casting Hours Required for Production Volume

Answer 1

	Throttle Body A	Throttle Body B
Selling price per unit	16	24
Variable cost per unit	12.50	19
Units per Casting Hour	50	20
Quantity Demanded	300000	90000
Total Casting Hours Required to satisfy Demand
Aluminum Casting Capacity =	9000	hours
Calculate Profit-maximizing Product Mix:
	Throttle Body A	Throttle Body B
Contribution Margin per unit	$3.50	$5
Contribution Margin per Casting Hour	$175	$100
Planned Production Volume	300000	60000
Total Casting Hours Required for Production Volume	6000	3000

Contribution Margin per unit = selling price per unit – variable cost per unit

Contribution Margin per Casting Hour = Contribution Margin per unit* Units per Casting Hour

First all units of product having higher Contribution Margin per Casting Hour should be produced. Here Contribution Margin per Casting Hour is higher for Throttle Body A, so the production of number of units required to fulfill complete demand should be done using the required number of casting hours from the available capacity. Then the remaining hours should be used for other product. So all 300000 units of Throttle Body A should be produced using 6000 hours (300000/50) and then remaining 3000 hours (9000-6000) are used to produce Throttle Body B. Using 3000 hours, 60000 units (3000*20) of Throttle Body B can be produced.