Tactical Decisions H.W.
Component Company manufactures three types of components. The company sells these components to manufacturers who use them in a larger product. They are referred to as basic, standard and deluxe depending upon their quality.
To produce each of the three kinds of components requires the use of a special machine that has a total capacity of 15,000 machine-hours per year.
Given:
Basic Standard Deluxe
CM/unit $3.00 $10.00 $25.00
M-hrs./unit .10 .50 .75
1. How many of each kind of component should be produced and sold to maximize the company's contribution margin assuming any units produced can be sold? What is the total contribution margin for this selection?
2. What if the company believes that it cannot sell more than 12,000 of the deluxe component, but it can sell up to 50,000 each of the basic and standard components? What should the product mix be now, and what would be the total contribution margin resulting from this mix?