Question

You have three product lines: Basic, Premium, and Supreme. You have limited capacity of 300 machine hours. You face excess demand for all three products (assume unlimited demand for simplicity). Basic Premium Supreme Price per unit $2,400 $5,600 $8,000 Unit variable cost $800 $1,600 $2,400 Machine hours per unit 1 2 Compute the CM per unit of capacity (I.e, per machine-hour) for each product: Basics Premium - $ per hour Supreme = $ per hour per hour Which product(s) should you make? O Make all three products to take advantage of the high demand O Premium only O Basic only O Supreme only How many units of each product should you make? (enter o for products that you do not want to make) Basic units Premium - units Supreme - units Hint if you get stuck: You have 300 machine hours.

Answer 1

Basic Premium Supreme $1,600 per hour $2,000 per hour $1,400 per hour Premium only Basic Premium Supreme o Units 150 Units o Units (300 machine hours/2) Working notes: Ranking of Contribution per constraint resource Selling price Variable expenses: Contribution per unit (Sales-VC) Machine time per unit Contribution margin per machine hour Ranking for production plan Basic $2,400 $800 $1,600 1 $1,600 II Product Premium $5,600 $1,600 $4,000 2 $2,000 1 Supreme $8,000 $2,400 $5,600 4 $1,400 III