Question

Elliot Company can sell all of its products A and Z that it can produce, but it has limited production capacity. It can produce 8 units of A per hour or 10 units of Z per hour, and it has 20,000 production hours available. Contribution margin per unit is $12 for A and $10 for Z. What is the most profitable sales mix for Elliot Company?

Answer 1

Answer:

Do Product Z first

Then proceed with product A

Explanation:

We must convert the unit contribution to the contributon per hour. Which is the scarce resource.

8 units of product A with $12 contribution = $96 contribution per hour

10 units of product B with $10 contribution = $100 contribution per hour

Product Z is the most profitable per hour. So it should produce as much units of product Z as possible and then once the demand for Z is fulfil start producing A

Answer 2

Answer:

200,000 units of Z and 0 of A.

Explanation:

For each hour:

8 units of A, at $12: So a gain of 8*12 = $96.

10 units of Z, at $10: So a gain of 10*10 = $100.

Since Z is more profitable, if it is possible to sell only the unit Z, you should do this.

So you have 20,000 production hours avaiable, and at each hour you can produce 10 units of Z. So in all, the most productive sales mix is 200,000 units of Z and 0 of A.