Question
Harzog Industries produces three products, as shown below. A B C Sales price $75 $130 $30 Variable cost per unit 40 90 15 Contribution margin
Harzog Industries produces three products, as shown below.
| A | B | C |
Sales price | $75 | $130 | $30 |
Variable cost per unit | 40 | 90 | 15 |
Contribution margin | $35 | $ 40 | $15 |
Laminating hours per unit | 5 | 10 | 2 |
Monthly demand (units) | 30,000 | 15,000 | 10,000 |
Because of a recent fire that destroyed a small section of the factory, Harzog has only 250,000 laminating hours available for the coming month's production schedule.
Assume that Harzog has obtained a new piece of equipment that will be used only in the production of product B. This new equipment will increase the variable cost per unit to $100, but it will reduce reduce the number of laminating hours required for product B down to 3 hours. The new equipment will not affect the total number of laminating hours available. How does the acquisition of this new equipment affect Harzogs planned production? Be specific.
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