Barter

Barter Wood Company makes a regular and a deluxe grade of wood floors. Regular grade is sold at $ 19

$19 per squareyard, and the deluxe grade is sold at $ 30

$30 per square yard. The variable cost of making the regular grade is $ 8

$8 per square yard. It costs an extra $ 5

$5 per square yard to make the deluxe grade. It takes 20

20 labor hours to make 100

100 square yards of the regulargrade, and 25

25 labor hours to make 100

100 square yards of the deluxe grade. There are 4 comma 800

4,800 hours of labor time available for production each week. The maximum weekly sales for the regular and the deluxe model are 25 comma 000

25,000 and 7 comma 000

7,000 squareyards, respectively. Fixed production costs total

$ 550 comma 000

$550,000 per year. All selling costs are fixed.

Requirement

What is the optimal production level in number of square yards for eachproduct?

Requirement What is the optimal production level in number of square yards for eachproduct?

Begin by calculating the contribution margin per direct labor hour for each product grade. (Abbreviations used: DLH= Direct laborhour)

Regular

Deluxe

Contribution margin per DLH

What is the optimal production level in number of square yards for eachproduct?

Barter

Barter Wood Company should produce

nothing

square yards of the

deluxe grade

regular grade

first and then use the remaining available capacity to produce

nothing

square yards of the

deluxe grade

regular grade

.