Question

XYZ Company produces three products, A, B, and C. XYZ's plant capacity
is limited to 48,000 machine hours per year. The following information
is available for planning purposes:

Product A Product B Product C
demand for next year ............. 21,000 units 28,000 units 35,000 units
selling price per unit ........... $80 $120 $160
direct material cost per unit .... $24 $ 22 $ 36
direct labor cost per unit ....... $18 $ 50 $ 62
variable overhead cost per unit .. $22 $ 25 $ 33

It takes 0.80 machine hours to produce one unit of Product A; 1.20 machine
hours to produce one unit of Product B; and 1.60 machine hours to produce
one unit of Product C.

Assume that XYZ Company can work its plant overtime for 8,000 additional
machine hours. Overtime premiums will add 50% to direct labor costs.

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

Answer 1

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		Product A	Product B	Product C
Demand for the next Year		21,000	28,000	35,000
Selling price per unit		$               80	$            120	$            160
Direct material cost per unit		$            (24)	$            (22)	$            (36)
Direct labor cost per unit		$            (18)	$            (50)	$            (62)
Variable overhead cost per unit		$            (22)	$            (25)	$            (33)
Gross Margin per unit	a	$               16	$               23	$              29
Machine Hours per unit	b	0.80	1.20	1.60
Gross Margin per Machine hour	a/b	$         20.00	$         19.17	$        18.13
Ranking		I	II	III
					Total
Production		21,000	28,000
Hours used		16,800	33,600		50,400
Available Hours (48,000+8,000)					56,000
Hours available for Product C					5,600
Machine Hours per unit					1.60
No of Product C to be produced	5,600 Hours/1.60				3,500	Unit of C