Answer:
A.C. Tech Manufacturing Appliances
Product Models to produce first, if management incorporates a short-run profit-maximizing strategy:
Small Medium Large
Selling price $430 $610 $1,210
Variable cost $270 $280 $530
Contribution $160 $330 $680
Fixed Costs:
Fixed manufacturing $40 $170 $270
Fixed selling & admin $70 $75 $140
Unit Profit $50 $85 $270
Demand in units 150 170 150
Total profit $7,500 $14,450 $40,500
Machine hours/unit 60 60 150
Total machine hours required 9,000 10,200 22,500
Unit profit per machine hour $0.83 $1.42 $1.80
If management incorporates a short-run profit maximizing strategy, given maximum machine hours available, it should first produce the large model.
Explanation:
The large model offers better contribution per unit, better profit per unit and in total, and most importantly better profit per unit of hour (major constraint).
In making a limiting factor decision, the choice goes to the product model that produces more profit under the limiting constraint.
