Question

Sunny Inc produces both regular and high performance of solar panels. Data related to each product it as follows:

Regular High Performance

Sales: $35 $82

DM: 14 47

DL: 8 13

VMOH. 6 10

Units per direct 6.30 up/h 3.40 up/h

labor hour

Most of the assembly process is done by hand: A total of 3,500 direct labor hours are available each year.

Required: If there is unlimited demand for each product, how many of each type of panes should be produced in order to maximize profits.

Answer 1

Sunny Inc.

In the given question, Direct Labour Hours is constraint or limiting factor and the demand is unlimited for each product. Therefore, we need to look at the product which has highest contribution per labour hour and the production of that unit need to be produced at maximum to maximize the profits.

Workings to calculate the contribution per labor hour for each product.

From the above calculations we can see that Regular Solar Panel has highest contribution per direct labor hour, hence these should be produced at maximum to maximize the profits.

Verification to see if the total available direct labor hours of 3500 are employed to produce each type of product:

We can see that producing the regular solar panels with the available 3500 direct labour hours would give us an highest contribution margin i.e., $154350..