Question

Exercise 8-13 Sunland Co. is considering the introduction of three new products. Per unit sales and cost information are as follows: Sales Variable costs Fixed costs Labor hours per unit Monthly demand in units $ 4.00 $ 1.20 $ 0.50 1.20 hours 500 в $ 6.00 $ 3.40 $ 1.00 0.50 hours 610 $ 15.00 $ 12.00 $ 3.50 5 hours 260 The company has only 1,800 direct labor hours available to commit to production of any new products. How many of each product should Sunland Co. produce and sell to maximize its profit? (Round answers to 0 decimal places, e.g. 5,275.)

Answer 1

Solution

Product	Units to be Produced
Product A	500
Product B	610
Product C	179

Working

Statement of ranking indicating which product to produced first, second and third
	Product
	Product A	Product B	Product C
Sales price per unit	$              4.00	$                  6.00	$           15.00
Variable cost per unit	$              1.20	$                  3.40	$           12.00
Contribution margin per unit	$              2.80	$                  2.60	$             3.00
Labor hours per unit	1.20	0.50	5.00
Contribution margin per Labor hour	$              2.33	$                  5.20	$             0.60
Ranking	II	I	III
Produce	Second	First	Third

.

Statement of Optimum mix
Product	Units to be Produced	Machine hours per unit	Machine hours consumed
Product A	500	1.20	600.00
Product B	610	0.50	305.00
Product C	179	5.00	895.00
Maximum Quantity			1800.00