Analyze Alternative Actions with Multiple Products: Rienz Corporation manufactures two models: Average and Deluxe. The following data are derived from company accounting records for the two products for the past month:

Production is constrained by the availability of certain materials. Each Average model takes 10 kg of these materials, while each Deluxe model uses 15 kg. There are 22,000 kg of materials available each month. Marketing constraints limit the number of Average models to 1,800 per month. Deluxe models are similarly limited to 1.200 per month.

The fixed manufacturing costs for each product would be eliminated if the product was no longer manufactured. However, administrative costs will not change with the elimination of either product.

Required: What is the optimal product mix and what is the profit that would be earned at that product mix? Show computations.

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Sales volume Sales revenue Manufacturing costs: Variable Fixed Marketing costs (all variable) Administrative costs (all fixed) Total costs Division profit Average 1,000 units Deluxe 800 units $135,000 $160,000 25,000 40,000 45,000 50,000 27,000 32,000 20,000 25,000 117,000 147,000 $ 18,000 $ 13,000