(Allocation of scarce resources) Because the employees of one of its plants are out on strike, Allentown Electronics has found itself operating at peak capacity.

The firm makes two electronic products, beepers and cell phones. Presently, the company can sell as many of each product as it can make, but it takes twice as long in production labor time to make a cell phone as it does to make a beeper. The firm’s production capacity is only 120,000 labor hours per month.

Data on each product follow:

Beepers Cell Phones Sales $30 $56 Variable costs (24) (46)

Contribution margin $ 6 $10 Labor hours required 2 4 Fixed costs are $140,000 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?