A Company Produces Three Different Products That All Require Processing

question 80

Essay

A company produces three different products that all require processing on the same machines. There are only 27,000 machine hours available in each year. Production information for each product is:
$$\begin{array} { | l | r | r | r | } \hline &\underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline{\mathrm{c}}\\ \hline \text { Sales price per unit } & \$ 20.00 & \$ 38.00 & \$ 35.00 \\\hline \text { Variable costsper unit } & \$ 12.00 & \$ 26.00 & \$ 17.00 \\\hline \text { Machine hours necessary to produce one unit } & 2.5 & 4.0 & 4.50 \\\hline\end{array}$$ Required:
(1) Determine the preferred sales mix if there are no market constraints on any of the products.
(2) Determine the preferred sales mix if the demand is limited to 5,000 units for each product.
(3) Determine the preferred sales mix if the demand is limited to 3,000 units for each product.

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Definitions:

Established Business Practices

Conventional methods and procedures that are widely accepted and utilized within a particular industry or by a specific company over time.

Performance Levels

Measures of an individual, group, or organization's output compared to a predefined standard or expectation.

Direct Costs

Costs that can be directly attributed to the production of specific goods or services, such as labor and materials.

Factory Rent

Factory rent is the cost associated with leasing or renting a manufacturing facility, which is typically categorized as a fixed expense for the business.