Problem: The HighTech Corporation manufactures sound systems for the retail market. It makes two product lines: super model and deluxe model. Annual cost and production information is summarized below:
Total budgeted fixed manufacturing costs: $100,000
Total budgeted fixed selling costs $50,000
Hours of production capacity available each year 20,000 hours
Super Model Deluxe Model
Unit Selling Price $600 $1,200
Variable Costs per unit 300 600
Contribution margin per unit $300 $600
The market will permit the firm to sell as much or as little of each model that the firm wishes to manufacture. It takes 10 hours to make a super model and it takes 24 hours to make a deluxe model.
REQUIRED:
What production combination will produce the greatest profit for the firm? Justify your choice.