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	$	140		$	160
Variable cost per unit	$	60		$	64
Machine hours per unit		0.5			1.5

The one machine that used to produce both models has a capacity of 110,000 machine-hours per quarter. Fixed manufacturing costs per quarter are $900,000.

Required:

a. Suppose that the maximum unit sales in a quarter that Pappy's can achieve is 240,000 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 130,000 units of each product. How many units of each model should Pappy's produce in a quarter?

A.

Standard Model		Units
Deluxe Model		Units

B.

Standard Model		Units
Deluxe Model		Units

Answer 1

A) standard model 110,000/0.5= 220,000

deluxe model: 0

B) standard model: 130,000

deluxe model: 43,333

130,000*0.5= 65,000

130,000-65,000=65,000

65,000/1.5= 43,333.333333333 

Answer 2

Working Notes: 1
	Calculation of Contribution margin per unit of Machine hours and ranking of the same
		Product - Standard	Product - Deluxe
	Price Per Unit	$                              140	$                           160
	Less: Variable Cost Per Unit	$                                 60	$                             64
	Contribution Margin	$                                 80	$                             96
	Divide By	"/" By	"/" By
	Machine hours required per unit of production	0.5	1.5
	Equals to =	(1 Hrs / 4 Units)	(2 Hrs / 4 Units)
	Contribution Margin Per machine hours	$                           160.0	$                          64.0
	Ranking of the same	1st	2 Nd
Solution: A
	Calculation of optimum production for maximum contribution margin if 240,000 units sales available
		Units	Machine hrs required	Total hrs used	Balane Hrs Avaialbe
	Total Hrs Avaialble				110000
	Product - Standard	220000	0.5	110000	0
	If the Maximum unit sales is 240,000 for the both units than,
	Pappy casn produce only Standard 220,000 units
	Answer =
	Standard Model	220000	Units
	Deluxe Model	0	Units
Solution: B
	Calculation of optimum production for maximum contribution margin if 130,000 units sales available
		Units	Machine hrs required	Total hrs used	Balane Hrs Avaialbe
	Total Hrs Avaialble				110000
	Product - Standard	130000	0.5	65000	45000
	Product - Delux	30000	1.5	45000
		(45,000 Hrs / 1.5 Hrs)
	Answer =
	Standard Model	130000	Units
	Deluxe Model	30000	Units