Question
Cindys Umbrellas makes two types of patio umbrellas, regular and deluxe. Suppose there is unlimited customer demand for each product. The selling prices and variable
Cindys Umbrellas makes two types of patio umbrellas, regular and deluxe. Suppose there is unlimited customer demand for each product. The selling prices and variable costs of each product are listed below.
Regular Deluxe
Selling price per unit $40 $110
Variable cost per unit 20 44
Contribution margin per unit $20 $66
Required machine hours/unit 0.4 2.0
Cindy has only 160,000 machine hours available per year
a. What is Cindys objective function?
b. Write Cindys machine hour constraint as an inequality.
c. What are Cindys contribution margins per machine hour for Regular and Deluxe umbrellas?
d. How many units of Regular umbrellas should Cindy make? How many units of Deluxe umbrellas should Cindy make? What is the value of Cindys objective function at this level of activity?
e. Now assume Cindy only has customer demand for 300,000 units of Regular umbrellas. How many units of Regular umbrellas should Cindy make? How many units of Deluxe umbrellas should Cindy make? What is the value of Cindys objective function at this level of activity?
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