Question

Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow. $ Basic 35 21,000 Classic $ 67 14,000 Formal $ 180 31,000 Sales price Maximum annual demand (units) Input requirement per unit Direct material Direct labor 0.5 yards 0.8 hours 0.3 yards 2 hours 0.6 yards 6 hours $ Costs Variable costs Materials Direct labor Factory overhead Marketing Annual fixed costs Manufacturing Marketing Administration 21 per yard 17 per hour 5 per direct labor-hour 10 % of sales price $53,000 $ 9,000 $47,000 The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 35,000 direct labor-hours per year caused by the plant layout.

Answer 1

As the tables for answer are not shown along with the question, I will try to answer as closely as possible. Plug the answers accordingly.

a-1: Contribution margin. [The company cannot satisfy annual demand due to limited supply of direct labor hours, but as the question says to "assume" that the company can satisfy, I will assume that it just can. If this is not what is in conformity with the answer in the program, please show the tables. (Updated based on the comment)]:

	Basic	Classic	Formal	Total
Revenue	$          7,35,000	$          9,38,000	$          55,80,000	$          72,53,000
Variable Costs	$          6,63,600	$          7,98,000	$          50,40,600	$          65,02,200
Contribution	$             71,400	$          1,40,000	$            5,39,400	$            7,50,800

a-2: Operating Profit = Total Contribution - Fixed Costs = ($71,400 + $140,000 + $539,400) - ($53,000 + $9,000 + $47,000) = $641,800

b-1: Contribution Margin per direct labor hour:

	Basic	Classic	Formal
(a) Contribution p.u. [(b) - (c)]	$            3	$             10	$             17
(b) Direct labor hour p.u.	0.8	2	6
(c) Contribution per constraint [(a) / (b)]	$      4.25	$         5.00	$         2.90

b-2: Classic makes the most profitable use of the constrained resource as it has a Contribution per labor hour of $5 per unit which is higher than that of other products.

c. Product Mix shall be 8,750 units of Basic, 14,000 units of Classic and 0 units of Formal as demonstrated below:

	Basic	Classic	Formal	Balance
(a) Contribution p.u. [(b) - (c)]	$            3.4	$             10	$             17.40
(b) Direct labor hour p.u.	0.8	2	6
(c) Contribution per constraint [(a) / (b)]	$      4.25	$         5.00	$         2.90
(d) Ranking based on ©	II	I	III
(d) Total demand	21000	14000	31000
(e) Total hours required to meet demand [(b) x (d)]	16800	28000	186000
(f) Hours for Classic to be produced fully		28000		7000
(g) Balance hours to produce Basic	7000			0
(h) Units produced [(f) / (b)], [(g) / (b)]	8750	14000

d-1: Same as a-1, as the "table" is not given, this cannot be answered. (Updated based on the comments):

	Basic and Classic
Revenue	$           12,44,250
Variable Man. Costs
Direct Labor	$             5,95,000
Direct Material	$             1,80,075
Variable Marketing	$             1,24,425
Variable OH	$             1,75,000
Total Costs	$           10,74,500
Contribution	$             1,69,750

d-2: Operating Profit from the recommended Product Mix: (8,750 x $3) + (14,000 x $10) - ($53,000 + $9,000 + $47,000) = $57,250

e: The company shall produce 3,083 units of Formal, and will earn an additional profit of $43,162 as demonstrated below.

	Basic	Classic	Formal
(a) Annual demand not met	12250	0	31000
(b) Hours required per unit	0.8	-	6
(c) Contribution per unit	$          -		$         14.40
(d) Contribution per constraint	$          -		$            2.40
(e) Hours for unmet demand for Formal to be produced now			18500
(f) Units produced [(e) / (b)], decimals removed			3083
(g) Contribution			$ 44,395.20

Hope this helps.
Awaiting your comments for the additional information.
Thank you!