Question

Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 160 units (each) monthly Slavin is currently producing 110 Alphas and 110 Deltas each month. Cost and machine-usage data for the two products are shown in the following table, which Slavin managers use for planning purposes. Total Alpha $ 120 Delta $ 150 Price Less variable costs per unit Material Labor Overhead Contribution margin per unit Fixed costs Manufacturing Marketing and administrative 19.5 25.5 16 $ 59 34.5 37.5 15 $ 63 $ 7,909 $ 4,900 $12,800 2.0 2.5 495 500 Machine hours per unit Machine hours used Machine hours available Quantity produced Maximum demand Profit 110 110 160 16e $ 620 Required: a. What is the optimal production schedule for Slavin? In other words, how many Alphas and Deltas should the company produce each month to maximize monthly profit? If sunnbror at the law alfarinnlin raruriirement at humich will month nfit incronanver the Front nation echarlie

Answer 1

Solution: Requirement A:

Alpha	160 units
Delta	72 units

Requirement B: Increase in Profit = $556

Explanation: Requirement A:

Contribution per hour for Alpha and Delta

Alpha = Contribution / Hour required for 1 unit of Alpha

= $ 59 / 2 = $ 29.5

Delta = $ 63 / 2.5 = $ 25.2

Contribution per hour from product Alpha is more so Slavin Corporation should produce the product Alpha at maximum demand level to maximise the profits.

Therefore, Slavin Corporation should produce 160 units of product Alpha

Hours required to make 160 units of product Alpha = 160 units * 2 hours = 320 hours

Balance hours available = Total hours - Hours used to produce product Alpha

= 500 - 320 = 180 hours

Production of product Delta in 180 hours = 180 hours / 2.5 hours per unit = 72 units

Requirement B: Profit as per above production schedule

Contribution: Alpha (160 units * $59)	$9,440
Delta (72 units * $63)	$4,536
Total Contribution	$13,976
Less: Fixed Costs	$12,800
Profit	$1,176

Increase in Profit = New Profit - Old Profit

= $1,176 - $620 = $556

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