Refer to the Kellerman Detailing Service information below.
Kellerman Detailing Service
Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows:
$\begin{array}{lrr}
&\text { Standard}&\text { Deluxe }\
\text { Sales price } & \$ 85 & \$ 200 \
\text { Direct materials } & 5 & 10 \
\text { Direct labour } & 15 & 40 \
\text { Variable overhead } & 5 & 15 \
\text { Direct labour hours } & 2 & 3
\end{array}$

Most of the car detailing is done by hand.
-There is a maximum of 4050 direct labour hours available each year.If demand were equally strong for both packages and the company could sell an unlimited number of either package,how many of which kind(s)of package(s)should be sold in order to maximise profits?

Question

Refer to the Kellerman Detailing Service information below.
Kellerman Detailing Service
Kellerman Detailing Service provides two types of car detailing packages: the standard and the deluxe. Selected data related to each package is as follows:
$\begin{array}{lrr}
&\text { Standard}&\text {  Deluxe }\
\text { Sales price } & \$ 85 & \$ 200 \
\text { Direct materials } & 5 & 10 \
\text { Direct labour } & 15 & 40 \
\text { Variable overhead } & 5 & 15 \
\text { Direct labour hours } & 2 & 3
\end{array}$

Most of the car detailing is done by hand.
-There is a maximum of 4050 direct labour hours available each year.If demand were equally strong for both packages and the company could sell an unlimited number of either package,how many of which kind(s)of package(s)should be sold in order to maximise profits?

Quizplus · Accepted Answer

To maximize profits with a constraint on direct labor hours, the company should focus on the package with the highest contribution margin per labor hour. The contribution margin per labor hour for each package is calculated as follows:- Standard package: $(85 - 5 - 15 - 5) / 2 = 30 / 2 = 15$ dollars per labor hour.- Deluxe package: $(200 - 10 - 40 - 15) / 3 = 135 / 3 = 45$ dollars per labor hour.The deluxe package has a higher contribution margin per labor hour (45 dollars) compared to the standard package (15 dollars). Therefore, to maximize profits, Kellerman Detailing Service should focus on selling the deluxe package.Given the total direct labor hours available (4050 hours) and the direct labor hours required for the deluxe package (3 hours), the maximum number of deluxe packages that can be sold is $4050 / 3 = 1350$ deluxe packages.

Refer to the Kellerman Detailing Service Information Below Most of the Car Detailing Is Done by Hand