Luter Products Inc.makes two products-G16F and C53Z.Product G16F's selling price is $308.00 and its unit variable cost is $215.60.Product C53Z's selling price is $84.00 and its unit variable cost is $58.80.The monthly demand is 570 units for product G16F and 2, 200 units for C53Z.The constrained resource is a particular machine that is available for 10, 100 minutes each month.Each unit of product G16F requires 14 minutes on this machine and each unit of product C53Z requires 3 minutes on this machine. How many units of product G16F should be produced each month?

Question

Quizplus · Accepted Answer

To maximize profit, we need to produce the product that generates the highest contribution margin per constrained resource. 
For product G16F, the contribution margin per unit is: $308.00 - $215.60 = $92.40
For product C53Z, the contribution margin per unit is: $84.00 - $58.80 = $25.20
We also need to calculate the contribution margin per minute of the constrained resource for each product:
- Product G16F: $92.40 ÷ 14 minutes = $6.60 per minute
- Product C53Z: $25.20 ÷ 3 minutes = $8.40 per minute
Based on these calculations, we can see that product C53Z generates a higher contribution margin per minute of the constrained resource. Therefore, we should produce only product C53Z and not produce any units of product G16F.

Note: The total time required to produce 2,200 units of product C53Z is 2,200 × 3 minutes = 6,600 minutes, which is within the available 10,100 minutes per month on the machine.