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 Selling price Variable costs Milling machine time (hours) $ $ 50 40 $ $ 80 50 $ $ 70 55 5 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: Given the milling machine constraint and unlimited demand for each product, which product should be sold? b. 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? 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

$50 $80 $70 $40 $50 $55 Selling Price (a) Variable Cost (b) Contribution per unit (c) = (a) - (b) Milling Machine Time (d) Contribution per hour (c)/(d). $10 $30 $15 Since, contribution per hour is highest for Product G, therefore Product G should be sold with unlimited demand for each product. Since, contribution per hour is $6 for Product G, therefore company should be willing to pay any amount less than $6 per hour. Statement of Unit produced 300 600 Unit demand Milling Machine Time Total Milling machine time Units sold Noo Ignoo 2400 480 d. Net Income = Contribution - Fixed Cost = (30 x 480) - 5,000 $9,400