Woodstock Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $580 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1500,has variable costs of $970,and takes eight direct labor hours to manufacture.The company has a maximum of 5000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either product,and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximize operating income of the company?

Question

Quizplus · Accepted Answer

The large table has a higher contribution margin per labor hour ($66.25) compared to the small table ($22). Therefore, to maximize operating income, the company should produce only large tables, using all 5000 labor hours to produce 625 units.

Woodstock Furniture Manufactures a Small Table and a Large Table