T&G Co. manufactures three typ
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1. The company has a contract that requires it to supply 570units of each product to a customer. The total market demand for asingle product is limited to 1,500 units. How many units of eachproduct should the company manufacture to maximize its totalcontribution margin including the contract?
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Answer:
Contribution margin = Sales – Variable cost
Contribution margin per limiting factor = Contribution margin/Limiting factor per unit
Product A
Contribution margin = 76,000 – 41,000 = $35,000
Contribution margin per limiting factor
= 35,000/7
= $5,000
Product B
Contribution margin = 104,000 – 69,000 = $35,000
Contribution margin per limiting factor
=35,000/5
= $7,000
Product C
Contribution margin = 115,000 – 105,000 = $10,000
Contribution margin per limiting factor
= 10,000/5
= $2,000
Therefore as the contribution margin per limiting factor ishighest of product B therefore maximum of Product B is to beproduced . However 570 units each of product A and C is to producedfirst. And as the total demand for product is 1,500 units thereforesecond best product is product A as contribution margin perlimiting factor is higher than C
Units of B = 1500 units
Hours used = 1500*5 = 7,500
Units of C = 570 units
Hours used = 570*5 = 2,850
Hours left = 17,000 – 7,500 – 2,850 = 6,650
Units of A = 6,650/7 = 950 units
Therefore total units are as follows
Product A = 950 units
Product B = 1,500 units
Product C = 570 units
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