Question
Brown Ltd produces the Single and Double models in its flagship range of beauty products. The demand for the two models has been steady over
Brown Ltd produces the Single and Double models in its flagship range of beauty products. The demand for the two models has been steady over the past three years, with sales of 140 units of Single and 80 units of Super model per month. For the next period, the company has budgeted a total of 590 machine hours for the production of the above two models. You have been provided with the following information for each unit of the products: Single Double Contribution margin per unit 18 25 Number of machine hours required 3 5 Required: a) Compute the contribution margin per machine hour for each model (2 marks) b) In order to maximize monthly production profits, compute i) the number of machine hours you would recommend for each model ii) the number of units to be produced for each model. (6 marks) c) The company has been presented with the option of increasing the total available machine hours to 830 hours from the existing 590 hours. The cost for this option is an extra 250 per month. Assuming that this option has no impact on any other factor, i) calculate the number of units for each model that should be produced, in order to maximize profits? ii) Explain whether the company should take this option.
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