Misbah Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: $$\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sales price } & \$ 26 & \$ 36 \
\hline \text { Variable costs } & \$ 14 & \$ 26 \
\hline \text { Machine hours required for one lamp } & 1 & 5 \
\hline
\end{array}$$ Total fixed costs are $30,000.Marketing data indicate that the company can sell up to 6000 units of the Bedford Lamp and up to 6000 units of the Lowell Lamp.Machine hour capacity is 25,000 hours per year.Which product mix will deliver the optimum operating income?

Question

Misbah Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available: $$\begin{array} { | l | r | r | } 
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sales price } & \$ 26 & \$ 36 \
\hline \text { Variable costs } & \$ 14 & \$ 26 \
\hline \text { Machine hours required for one lamp } & 1 & 5 \
\hline
\end{array}$$ Total fixed costs are $30,000.Marketing data indicate that the company can sell up to 6000 units of the Bedford Lamp and up to 6000 units of the Lowell Lamp.Machine hour capacity is 25,000 hours per year.Which product mix will deliver the optimum operating income?

Quizplus · Accepted Answer

The optimum operating income is achieved by producing 6000 Bedford Lamps and 3800 Lowell Lamps. This product mix utilizes the available machine hour capacity and maximizes the contribution margin.

Misbah Corporation Manufactures Two Styles of Lamps-A Bedford Lamp and a Lowell