Question

1.    Product Mix with Limited Resources: Chocolate Extreme sells both hard candy and chocolate candy. It currently takes 1 hour to produce a batch of chocolate candy, and 2 hours to produce a batch of hard candy.   Given the current factory space, the company can work a total of 600 hours per month. The company feels that the current demand for chocolate candy would support the sale of up to 400 batches per month, while current demand for hard candy would support the sale of up to 300 batches per month. Current selling price for Chocolate is $7.50 per batch, with variable costs of $2.50 per batch, and current selling price for a batch of hard candy is $9.00 per batch, with variable costs of $3 per batch.

1. Given the information above, what would be the maximum profit the company can make?
2. How many batches of each type of candy should Chocolate Extreme make?

Answer 1

	Hard Candy	Chocolate Candy	TOTAL
Selling price per batch	$9	$7.50
Variable costs per batch	$3	$2.50
Contribution per batch	$6	$5
Time to produce one batch	2 hours	1 hour
Contribution per hour	$3	$5
Priority for allocation of hrs based on Contribution per hour	Second	First
Allocation of Hours	200 hrs (bal. figure)	400 hrs for 400 batches	600 hours
No. of batches	100 batches	400 batches

1. Maximum profit which the company can make by producing 400 batches of chocolate candy and 100 batches of hard candy are:

= (400 * 5) + (100 * 6)

= $ 2600

2. Number of batches of Chocolate candy = 400 batches

Number of batches of hard candy = 100 batches