Custom Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $570 per table and takes ten direct labour hours to manufacture.The large table sells for $1600,has variable costs of $960 and takes eight direct labour hours to manufacture.The company has a maximum of 5000 direct labour 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 maximise operating profit of the company?

Question

Quizplus · Accepted Answer

The large table has a higher contribution margin per labor hour ($80) compared to the small table ($23). To maximize profit, the company should produce only the large tables, using all available labor hours.

Custom Furniture Manufactures a Small Table and a Large Table