Bandy Corporation owns a machine which manufactures lawn games. Production time for the croquet set is ten units per hour and for the volley ball game is eight units per hour. The machine's capacity is 1,500 hours per year. Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 4,000 croquet sets and 10,000 volley ball games. Selling prices and variable costs per unit are shown below. Based on this information, what is Bandy Corporation's most profitable sales mix?
$$\begin{array} { l c c }
& \text { Croquet Set } & \text { Volleyball Game } \
\text { Selling price per unit } & \$ 75 & \$ 62 \
\text { Variable costs per unit } & 42 & 25
\end{array}$$

Question

Bandy Corporation owns a machine which manufactures lawn games. Production time for the croquet set is ten units per hour and for the volley ball game is eight units per hour. The machine's capacity is 1,500 hours per year. Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 4,000 croquet sets and 10,000 volley ball games. Selling prices and variable costs per unit are shown below. Based on this information, what is Bandy Corporation's most profitable sales mix?
$$\begin{array} { l c c } 
& \text { Croquet Set } & \text { Volleyball Game } \
\text { Selling price per unit } & \$ 75 & \$ 62 \
\text { Variable costs per unit } & 42 & 25
\end{array}$$

Quizplus · Accepted Answer

The most profitable sales mix is determined by maximizing the contribution margin per hour of machine time. The contribution margin per unit for croquet sets is $33 ($75 - $42) and for volleyball games is $37 ($62 - $25). The contribution margin per hour for croquet sets is $330 (10 units x $33) and for volleyball games is $296 (8 units x $37). Therefore, the company should prioritize producing croquet sets. However, due to the customer demand constraints, the optimal mix is 4,000 croquet sets and 8,800 volleyball games, which utilizes the machine's full capacity of 1,500 hours.

Bandy Corporation Owns a Machine Which Manufactures Lawn Games A) 15,000 Croquet Sets