(1) Hanson Company has forecast a demand of 10,000 units per month. Which product(s) should Hanson manufacture 10,000 units of to maximize its profits?
(2)Assume that skilled technicians are in short supply so that the total labor hours each month is restricted to 24,000 hrs. How many units of each type should Hanson manufacture (assuming it can sell all it can manufacture)?
(3)Assume that the company can hire any number of skilled technicians, but the machine hrs. are limited to 24,000 hrs. per month. How many of each units should Hanson manufacture (assuming it can sell all it can manufacture)?
(4)Assume that both resources are limited, so that the capacities of each of machine hrs. and labor hrs. are restricted to 24,000 hrs. per month. Now, how many units of each type should Hanson manufacture (assuming it can sell all it can manufacture)?
Homework Answers
Answer (1) Calculation of Contribution from each product
| Particulars | Regular | Premium | Luxury |
| Sales Price (A) | 550 | 600 | 680 |
| Less- Variable Cost | |||
| Processing Plant Costs ($20 per hour) | 200 | 120 | 60 |
| Skilled Technicians Costs ($50 per hour) | 200 | 300 | 500 |
| Total Variable Costs (B) | 400 | 420 | 560 |
| Contribution per unit (C) = (A) - (B) | 150 | 180 | 120 |
| Ranking | (II) | (I) | (III) |
Since, Premium version will give maximum contribution per unit, All 10,000 units of Premium version is prodused first.
Answer (2) Product ranking as per skilled technician hours is limited
| Particulars | Regular | Premium | Luxury |
| Contribution per unit (A) | 150 | 180 | 120 |
| Skilled technician hour per unit | 4 | 6 | 10 |
| Contribution per unit per Skilled technician hour | 37.5 | 30 | 12 |
| Ranking | (I) | (II) | (III) |
Since, Skilled technician hours are constraint factor, Hanson company will produce that version which gives maximum Contribution per unit per Skilled technician hour i.e. Regular Product.
Total Skilled labour hour = 24,000
Total Units of Regular version be produced = 24000/4 = 6000 units.
Answer 3) Product ranking as per Machine Processing hours is limited
| Particulars | Regular | Premium | Luxury |
| Contribution per unit (A) | 150 | 180 | 120 |
| Machine Processing hour per unit | 10 | 6 | 3 |
| Contribution per unit per Machine Processing hour | 15 | 30 | 40 |
| Ranking | (III) | (II) | (I) |
Since, Machine Processing hours are constraint factor, Hanson company will produce that version which gives maximum Contribution per unit per Machine Processing hour i.e. Luxury Product.
TotalMachine Processing hour = 24,000
Total Units of lUXURY version be produced = 24000/3 = 8000 units.
Answer 4) Product ranking if both Machine Processing hours and Skilled Labour hour is limited-
| Product | Machine Processing hours is limited | Skilled techician hour is limited | Maximum Permissible Units | ||||
| Hours/Unit | Total Hours | Unit | Hours/Unit | Total Hours | Unit | ||
| Regular | 10 | 24,000 | 2,400 | 4 | 24,000 | 6,000 | 2,400 |
| Premium | 6 | 24,000 | 4,000 | 6 | 24,000 | 4,000 | 4,000 |
| Luxury | 3 | 24,000 | 8,000 | 10 | 24,000 | 2,400 | 2,400 |
Calculation of Contribution based of maximum permissible units
| Particulars | Regular | Premium | Luxury |
| Maximum Permissible units (A) | 2400 | 4000 | 2400 |
| Contribution per unit (B) | 150 | 180 | 120 |
| per Machine Processing hour (C) = (A) * (B) | 3,60,000 | 7,20,000 | 2,88,000 |
Since, Both Machine Processing hours and skilled technician hours are constraint factor, Hanson company will produce that version which gives maximum Contribution i.e. Premium Product. Whole capcity will be utilised in production of Premium product.
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