Question

Pappy's Toys makes two models of a metal toy—Standard and DeLuxe. Both models are produced on a single machine. The price and costs of the two models appear as follows.

	Standard			DeLuxe
Price per unit	$	100		$	120
Variable cost per unit	$	44		$	48
Machine hours per unit		0.5			1.5

The one machine that used to produce both models has a capacity of 102,000 machine-hours per quarter. Fixed manufacturing costs per quarter are $860,000.

Required:

a. Suppose that the maximum unit sales in a quarter that Pappy's can achieve is 224,000 units of each product. How many units of each model should Pappy's produce in a quarter?

b. Suppose that the maximum unit sales in a quarter that Pappy's can achieve is 126,000 units of each product. How many units of each model should Pappy's produce in a quarter?

Answer 1

	Standard	Deluxe
Price per unit	100	120
Less: Variable cost per unit	44	48
Contribution margin per unit	56	72
Divide by Machine hours per unit	0.5	1.5
Contribution margin per machine hour	112	48
Standard model should be produced first
a
Units of Standard model	204000	=102000/0.5
Standard model	204000	units
Deluxe model	0	units
b
Machine hours for Standard model	63000	=126000*0.5
Machine hours remaining for Deluxe model	39000	=102000-63000
Units of Deluxe model	26000	=39000/1.5
Standard model	126000	units
Deluxe model	26000	units