Calculations | Particulars | Product A | Product B | Product C |
A | Sales price | 46.00 | 56.00 | 86.00 |
B | Variable costs | 22.00 | 12.25 | 38.00 |
C = A - B | Contribution per unit | 24.00 | 43.75 | 48.00 |
D | Required number of labor hours | 1.50 | 2.50 | 4.00 |
E = C / D | Contribution per labor hour | 16.00 | 17.50 | 12.00 |
Ranking of production | 2 | 1 | 3 |
So, as per above calculation, contribution per unit of labor hour (limited resource) is highest of Product B and then Product A and Product C
So, Product B should be manufactured first up to the maximum extent possible
Maximum production of product B = Maximum demand = 9,000 units
Labor hours required for 9,000 units
= Units x Labor hour required per unit
= 9,000 x 2.5
= 22,500 labor hours
Remaining Labor hours
= Total labor hours – Used in product B
= 50,000 – 22,500
= 27,500 labor hours
Second rank is of product A
Total maximum product of product A = Total demand = 13,000 units
Labor hours required for production of 13,000 units
= 13,000 x 1.50
= 19,500 labor hours
Remaining labor hours
= 27,500 – 19,500
= 8,000
Product C will be manufactured with remaining labor hours
So, Number of units manufactured of product C
= Remaining labor hours / Labor hours required per unit
= 8,000 / 4
= 2,000 units
Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information...
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