Question

Buzz appliances manufactures two​ products: food processors and espresso machines. The following data are​ available: food processors espresso makers sales price ​$125 ​$225 variable costs ​$80 ​$190 the company can manufacture either two food processors per machine hour or three espresso machines per machine hour. The​ company's production capacity is​ 1,600 machine hours per month. To maximize​ profits, what product and how many units should the company produce in a month​ (assuming unlimited demand for both​ products)?

Answer 1

In order to maximize profit, 4800 Expresso machines and 0 food processors should be produced.

How to maximize profit

From the information given, the contribution margin per hour for Expresso makers will be:

Sales price = $225

Less: Variable cost = $190

Contribution margin = $35

Units per hour = $3

Contribution margin per machine hour = $35 × 3 = $105

Also, the Contribution margin per machine hour for food processor is $90.

Number of units available = 1600

Units per machine hour = 3.

Units to manufacture = 1600 × 3 = 4800

Therefore, to maximize profit, 4800 Expresso machines and 0 food processors should be produced.

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