Question

Harvey Furniture manufactures two models of sofas, Standard and Premium. Weekly demand is estimated to be 100 units of the Standard Model and 77 units of the Premium Model. The following per unit data apply: Standard ModelPremium Model Selling price per unit ($) 200 320 Variable costs per unit ($) 179 290 Total fixed costs 22 000 Number of labour hours required 3

Constraint time from previous task: 492 hours, there is no longer constraint time.

How many sofas of each model should Harvey Furniture produce to maximise profits each week?

a) Number of units of Standard model to be produced?

b) Number of units of Premium model to be produced?

Answer 1

	Standard model	Premium model
Selling price per unit	$200	$320
Variable cost per unit	-$179	-$290
Contribution margin per unit	$21	$30
Labor hour per unit	3	5
Contribution margin per labor hour	21/3 = $7	30/5 = $6

Since Contribution margin per labor hour is higher for standard model, hence standard model should be produced to the maximum.

Total direct labor hour available = 492

Maximum demand of standard model = 100 units

Direct labor hour used in making standard model = Maximum demand of standard model x Direct labor hour per unit for standard model

= 100 x 3

= 300

Remaining direct labor hour = Total direct labor hour available - Direct labor hour used in making standard model

= 492 - 300

= 192

Production of premium model = Remaining direct labor hour /Direct labor hour per unit of premium model

= 192/5

= 38 units

a. Number of units of standard model = 100

b. Number of units of premium model = 38

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