(Allocation of scarce resource) Because the plant of its major competitor burned to the ground on July 4, Detroit Wheel Company has found itself operating at peak capacity. The firm makes two automotive components, wheel rims and jacks. At this time, the company can sell as many of each product as it can make, but it takes twice as long in machine hours to make a jack as it does to make wheel rims. The firm’s machines can be run only 120,000 hours per month. Data on each product follow:

Fixed costs run $70,000 per month.

a. How many of each product should the company make? Explain your answer.

b. What qualitative factors would you consider in making this product mix decision?LO1

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Sales Variable costs Contribution margin Machine hours required WHEELS JACKS $15 $28 12 23 $ 3 $ 5 2 4