Product mix decisions (Appendix 7.1; adapted from CPA exam). The Hanson Company manufactures two products, Zeta and Beta. Each product must pass through two processing operations. All materials enter production at the start of Process No. 1. Hanson has no work- in-process inventories. Hanson may produce either one product exclusively or various combinations of both products, subject to the following constraints:
Process No. 1 Process No. 2 Contribution Margin per Unit
Hours Required to Produce One Unit of
Zeta 1 1 $4.25
Beta 2 3 5.25
Total Capacity per Day in Hours 1,000 1,275
A shortage of technical labor has limited Beta production to 400 units per day. The firm has no constraints on the production of Zeta other than the hour constraints in the preceding schedule. Assume that all relations between capacity and production are linear.
What is the total contribution from the optimal product mix?
Text Book: Managerial Accounting: An Introduction to Concepts, Methods and Uses By Michael Maher, Clyde Stickney, And Roman Weil.