A company sells two products with information as follows: $\begin{array}{|l|r|r|}
\hline&{\text { A }} &{\text { B }} \
\hline \text { Price per unit } & \$ 12 & \$ 20 \
\hline \text { Variable cost per unit } & \$ 10 & \$ 12 \
\hline
\end{array}$ Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units of Product B can be made with one machine hour. The company has a maximum of 3,000 machine hours available per month.
-The company can sell up to 7,000 units of Product A per month, and up to 3,000 units of Product B for the month. What is the optimum product mix to maximize company's operating income?

Question

A company sells two products with information as follows: $\begin{array}{|l|r|r|} 
\hline&{\text { A }} &{\text { B }} \
\hline \text { Price per unit } & \$ 12 & \$ 20 \
\hline \text { Variable cost per unit } & \$ 10 & \$ 12 \
\hline
\end{array}$ Products are made by machine. 4 units of Product A can be made with one machine hour and 2 units of Product B can be made with one machine hour. The company has a maximum of 3,000 machine hours available per month.
-The company can sell up to 7,000 units of Product A per month, and up to 3,000 units of Product B for the month. What is the optimum product mix to maximize company's operating income?

Quizplus · Accepted Answer

The contribution margin per machine hour is higher for Product B (\$16) than for Product A (\$8). Therefore, the company should prioritize producing Product B to maximize operating income. Producing 3,000 units of B uses 1,500 machine hours, leaving 1,500 hours for Product A, allowing for 6,000 units of A.

A Company Sells Two Products with Information as Follows Products Are Made by Machine