Self-test Erin & Co. is not able to recruit sufficient skilled employees (the scarce factor) to fulfil the demand for the three different catering services it provides. The firm has only 144,200 hours of skilled time available and must decide how it is going to utilise that resource.

Our first step is to examine the income and expenses associated with those services.

Service Gold Silver Bronze Revenue per service 2,000 1,340 1,600 Variable salaries per service 800 600 700 Variable selling expenses per service 400 200 300 Contribution per service 800 540 600 Total fixed costs £400,000 Erin & Co. would like to provide as much of the Gold service as possible, followed by the Bronze service and finally the Silver service because the higher the contribution, the more speedily it would be able to cover its fixed costs.

The following information is available:

Service Gold Silver Bronze Staff hours per service 40 30 35 Demand for catering service 2,000 2,000 1,200 Total hours to meet demand 80,000 60,000 42,000 This results in a total demand requiring 182,000 hours. Erin & Co. only has 144,200 hours available. Therefore, it is apparent that it will not be able to satisfy the total demand.

You are to determine how the company should use the available hours so that it makes as much profit as possible.