Question

Question #2 (5 points) Bardo, Inc. produces three products. Data concerning the selling prices and variable costs of the three products, along with the amount of milling time needed to produce a unit, appear below: Product E GH Selling price SSos SO S70 Variable costs $405 SO SSS Milling machine time hours) 2 S S Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,400 hours of milling machine time available this week. Required: a. Given the milling machine constraint and unlimited demand for each product, which product should be sold? Assuming that there is still unfilled demand for the product selected above, how much should the company be willing to pay for an additional hour of milling machine time? Assume demand for the products was: 300 units of F, 600 units of G, and 400 units of H. Also, assume there is no possibility of paying overtime or otherwise relaxing the milling machine constraint of only 2,400 hours of milling time. What combination of products should Bardo sell (i.e. how many units of each product) to maximize income? d. Selling the number of units of each product determined in question (c), what is Bardo's net income, assuming fixed costs are$5,000?

Answer 1

		E	G	H
1	Selling price	50	80	70
2	Variable costs	40	50	55
3	Contribution per unit (1-2)	10	30	15
4	Milling machine time Hours	2	5	5
5	Contribution per hour (c/d)	5	6	3
	Ranking	2	1	3
6	Demand	300	600	400
a	Given the milling machine constraint and unlimited demand product G should be sold since the contribution per hour is high for product G
b	The company can be willing to pay a maximum amount of $ 6 for additional hour because $6 is the maximum amount that is earned for one additional hour spent on product G
c	Allocation of 2400 hours based on the ranking of products given above since ranking is given based on product that gives highest contribution per hour
6	Demand	300	600	400
7	Milling machine time	2	5	5
8	Total hours	600	3000	2000
9	Available hours can only be used to product G since only 2400 hours are availbale		2400
d	Income from the product G
	Contribution from Product G (600 units * 30$		18000
Less	Fixed costs		5000
	Income		13000