Product 1 |
Product 2 |
|
Sales Price |
$35 |
$48 |
Direct Materials |
8 |
12 |
Direct Labor |
4 |
3 |
V. Manu O/H |
7 |
5 |
F. Manu O/H |
4 |
1 |
Machine Time Required |
15 minutes |
60 minutes |
To satisfy current customer orders, Salt Company must produce at least 800 units of each product. Determine how Salt Company should use the 6,000 machine hours to maximize income and satisfy customer expectations
Chapter 7
Product 1 | Product 2 | |||
SP | 35 | 48 | ||
less | ||||
Direct Mat | -8 | -12 | ||
Direct Lab | -4 | -3 | ||
Var OH | -7 | -5 | ||
Contribution Per unit | 16 | 28 | ||
Machine hr require | 0.25 | 1 | ||
Contribution per machine hr | 64 | 28 | ||
Since the contribution of Product 1 is more than Product 2. | ||||
Therefore, Product 1 should be produced | ||||
Total machine hr = 6000 | ||||
Product 1 Units | Product 2 Units | Hrs Used | ||
Minimum 800 to be produced | 800 | 800 | 1000 | 800*.25+800*1 |
For remaning, 5000 hr, product 1 should be made | 20000 | |||
(5000/.25) | ||||
Total Units to maximize Income | 20800 | 800 |
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