Question

Pappy's Toys makes two models of a metal toy—Standard and DeLuxe. Both models are produced on a single machine. The price and costs of the two models appear as follows. Standard DeLuxe Price per unit $ 115 $ 135 Variable cost per unit $ 50 $ 54 Machine hours per unit 0.5 1.5 The one machine that used to produce both models has a capacity of 105,000 machine-hours per quarter. Fixed manufacturing costs per quarter are $875,000. Required: a. Suppose that the maximum unit sales in a quarter that Pappy's can achieve is 230,000 units of each product. How many units of each model should Pappy's produce in a quarter? b. Suppose that the maximum unit sales in a quarter that Pappy's can achieve is 127,500 units of each product. How many units of each model should Pappy's produce in a quarter?

Answer 1

Answer:

a) it will do 210,000 units of standard

b) 127,500 units of standard

     19,000 units of deluxe

Explanation:

         Standard   Deluxe

Sales                      115        135

Variable Cost      50         54

CM                            165         189

Constrain resource     0.5                1.5

   (machine hours)

CM per constrain  330.00    126.00

a)

As the company can use up to 105,000 machine hours It will use as much as it can in doing Standard model which yield a better contribution of the constrain resource.

105,000 machine hours available / 0.5 hours per standard unit = 210,000 units

As there are 230,000 untis available for Standard we can use the entire capacity for standard and achieve the maximum contribution

b) as there isn't enough demand for standard the compay will do the 127,500 and the rest fill it with deluxe:

105,000 hours - 127,500 x 0.5 = 28,500 hours for deluxe

28,500 / 1.5 hours per unt = 19,000 units for deluxe