Question

ABC Company manufactures four products. Sales are increasing and management is concerned that the company may not have sufficient capacity to meet the expected demand for the next month. Sales and production information for the next month appears below: selling price per unit variable costs per unit estimated demand in units direct labor hours needed per unit Product A $28.00 $19.10 1,400 1.25 Product B $37.00 $20.50 1,700 2.20 selling price per unit variable costs per unit estimated demand in units direct labor hours needed per unit Product C $22.00 $14.60 1,000 2.80 Product D $33.00 $24.00 1,500 1.80 ABC Company has a capacity of 5,470 direct labor hours per month Calculate the number of units of Product A that ABC Company should produce in the next month in order to maximize its net income.

Answer 1

(in $)

Particulars	Product A	Product B	Product C	Product D
Selling Price per unit - (1)	28	37	22	33
Variable cost per unit - (2)	19.1	20.5	14.6	24
Contribution - (3) = (1)-(2)	8.9	16.5	7.4	9
Direct Labour Hours - (4)	1.25	2.2	0.8	1.8
Contribution per labour hour -(5) = (4)/(3)	7.12	7.5	9.25	5
Rank of contribution per labour hour	3	2	1	4
Estimated demand (In units)	1400	1700	1000	1500
Labour hour required to meet estimated demand	1750	3740	800	2700
Split up of 5470 labour hours based on ranking (6)	930	3740	800	0
Products to be produced (7) = (6)/(4)	744	1700	1000	0