Adria Lopez has found that her line of computer desks and chairs has become very popular and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows.
|
Desks |
|
Chairs |
|
| Selling price per unit |
$ |
1,125 |
|
$ |
375 |
|
| Variable costs per unit |
|
500 |
|
|
200 |
|
|
|
|
|
|
|
|
| Contribution margin per unit |
$ |
625 |
|
$ |
175 |
|
|
|
|
|
|
|
|
| Direct labor hours per unit |
|
5 |
hours |
|
4 |
hours |
| Expected demand for next quarter |
|
175 |
desks |
|
50 |
chairs |
Adria has determined that she only has 1,015 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.
Determine the optimal sales mix and the contribution margin the business will earn at that sales mix (***fill in chart below***):
|
Desks |
Chairs |
|
| 1) See A |
3) |
6) |
|
| 2) See B |
4) |
7) |
|
| Contribution per direct labor hour |
5) |
8) |
|
|
|
|
|
|
Desks |
Chairs |
Totals |
| Maximum number of units to be sold |
175 |
50 |
11) |
| Hours required to produce maximum units |
9) |
10) |
12) |
|
|
|
|
| For most profitable sales mix |
|
|
|
|
Desks |
Chairs |
Total |
| Hours dedicated to the production of each product |
13) |
14) |
1015 |
|
|
|
|
| Units produced for most profitable sales mix |
15) |
18) |
|
| Contribution margin per unit |
16) |
19) |
|
| Total contribution margin |
17) |
20) |
21) |
A: Options for answer: Contribution margin per unit, fixed costs, income taxes, net income, sales, total production hours avaliable, or variable costs-- Choose one
B: Options for answer: Contribution margin per unit, fixed costs, income taxes, net income, sales, total production hours avaliable, or variable costs-- Choose one