Mays Company can sell all of product A that it produces but only 160,000 units of product Z. The company has limited production capacity. It can produce 6 units of A per hour or 10 units of Z per hour, and it has 30,000 production hours available. Contribution margin per unit is $12 for A and $10 for Z. What is the most profitable sales mix for this company?

What will be an ideal response?


?AZ?
Contribution margin per unit$12.00$10.00?
Production hours per unit1/61/10?
Contribution margin per production hour$72.00$100.00?
Maximum units that can be produced180,000300,000?
Limited by units that can be sold?160,000?
Hours required to produce Z (160,000/10)?16,000?
Hours remaining (30,000 - 16,000)14,000??
Units of A that can be produced (14,000 * 6)84,000??
Because Product Z yields the higher contribution margin per hour, all production should be devoted to producing Product Z first. Since the current market limit for Z is 160,000 units and Z yields the higher contribution margin per hour, all units of Z should be made first. The remaining capacity should be used to produce A, which would result in 84,000 units being produced.

Business

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