Answer:
The Company should make 26,000 units of product B to maximize it's net income.
Explanation:
The contribution margin( Sale price - Direct material- direct labor) for product A, B & C per unit is $38, $48 & $ 62 but per hour production( No of units produce is fro product A / hours to produce ) for product A, B & C is 1.3, 0.83 & .63.
Which means in 1 machine we can make contribution margin of $ 47.5 from product A , $ 40 from product B & $38.8 from product C. ( units produced in 1 hour * Per unit Contribution margin.
So, the company should prioritize it's machine hours for product A first than B & C in the last.
The demand for product A is 21,000 units , which means it will require 16,800 hours to meet the demand of product A as 1.3 units can be produced in 1 hour.
Since the total machine hours are 48,000 out of which 16,800 hours have been used for producing product A, so we are left with 31,200 hours while 0.83 units of product B can be produce in an hour. so we can produce 26,000 units of product B to maximize the net income.
Product A Product B Product C Total
Machine Hours 48,000
Demand 21,000 28,000 35,000 84,000
S.P $80.00 $120.00 $160.00
DM $24.00 $22.00 $36.00
DL $18.00 $50.00 $62.00
Contribution Margin Per unit $38.00 $48.00 $62.00
Units Produce Per hour Production 1.3 0.83 0.63
