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 G Selling price $ 80 $ 70 Variable costs $ 50 $ 55 Milling machine time (hours) 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: a. 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?

please solve this question

Answer 1

The product which provides maximum contribution margin per unit of constraint should be sold
	F	G	H
Selling Price	50	80	70
Variable costs	40	50	55
Contribution Margin per unit	10	30	15
Milling machine hours per unit	2	5	5
Contribution Margin per Hour	5	6	3
Hence, Product G should be sold
2.Amount to be paid for additional hour = Contribution margin earned per hour i.e. $6
c.The products will be produced in the order of contribution margin per hour
Product	Units	Hours per unit	Total Hours
F	0	2	0
G	480	5	2400
H	0	5	0
		Total	2400
i.e. 480 units of G
d.Net Income = 480*30-5,000 = $9,400