Question

Serial Problem Business Solutions LO A1 Santana Rey has found that Business Solutions's line of computer desks and chairs has become very popular, and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both Items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows. Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Expected demand for next quarter Desks $1,221.50 448.00 $ 781.50 6 hours 179 desks Chairs $441.25 180.00 $261.25 5 hours 45 chairs Santana has determined that she only has 1,244 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available. Required: Determine the optimal sales mix and the contribution margin the business will earn at that sales mix. (Round per unit amounts to 2 decimal places.)

Answer 1

Solution :

Determiniation of Optimal Sales mix and Contribution Margin the business will earn at the sales mix.

Particulars Contribution Margin per Unit Direct Labour hours per unit Contribution per direct labour hour Rank Desks $781.5 6hours $130.25 I Chairs $261.25 5 Hours $52.25 II Chairs Particulars Maximum Number of Units to be sold Hours Required to Produce Maximum Units Desks 179 1074 45 Total 224 1299 225 For most profitable sales mix Hours dedicated to the production of each produd Desks 1074 Chairs 170 Total 1,244 Units produced for most profitable sales mix Contribution Margin per unit Total contribution margin 179.00 34.00 781.50 261.25 139888.50 8,882.50 | 1,48,771.00