Elegance Bath Products, Inc.(EBP) makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time
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Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

Question

Elegance Bath Products, Inc.(EBP) makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time  
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Assume that EBP can sell as many as 1,000 sinks and 500 tubs per year.How many tubs should EBP produce?

Quizplus · Accepted Answer

Contribution Margin per molding hour for Sinks is ($150 -$80) / 2 or $35.
Contribution Margin per molding hour for Tubs is ($600 - $450) / 5 or $30.
 
To maximize profits, they should make as many sinks as will sell since the margin per molding hour is greater.Solving for the maximum sinks of 1,000, the number of tubs would be 410.
 
Expressed mathematically the equation is: (2 × 1,000 sinks) + (5 × 410 tubs) = 4,050