Short Inc. has 5,200 machine hours available each month. The following information on the company's three products is available: Product 1 Product 2 Product 3Contribution margin per unit$45.00 $54.00 $22.50 Machine hours per unit 3 2 1 Sales demand in units 900 1,000 3,000 Required:a. What production schedule will maximize the company's profits?b. What will be the maximum possible contribution margin?
What will be an ideal response?
a.
CM/hr for P1: $45/3 = $15; P2: $54/2 = $27; P3: $22.50/1 = $22.50; P2 first, then P3, finally P1.
P2: 1,000 units × 2 = 2,000 hrs; 5,200 ? 2,000 = 3,200 remaining; P3 3,000 × 1 = 3,000 hrs; 200 hrs remaining; P1 200/3 = 66 units; P1:66; P2: 1,000; P3: 3,000.
b.
(66 × $45) + (1,000 × $54) + (3,000 × $22.50) = $124,470.
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