Nour Library LO.4: Optimal Use of Limited Resources A limiting factor or scarce resource restricts or constrains the production or sale of a productor service. Suppose a plant makes more than one product and is operating at capacity. If demand for its products exceeds the amount the company can produce, managers must decide which product mix to produce. Limiting factors include labor hours and machine hours that limit production (and hence sales) in manufacturing firms, and square feet of floor space or cubic meters of display space that limit sales in department stores Problem (5) "Kenzy Co." has three stations for sorting and re-packing the red and yellow apples it imports every month. Each station works 25 days on the average every month, and two work-shifts of 8 hours each shift, are normally completed every working day in each station. Each sort of apple is offered for sale in special boxes where each box contains only one ton of either the red or the yellow apple. The monthly committed fixed costs of the company are LE 100,000. The company prepares budget for each quarter of the year and the following estimates are presented for the coming quarter which will start January 1, 2021: January February March Maximum demand (boxes) Selling price per box (LE 1000) Variable cost per box (LE 1000) Red Yellow Red Yellow Red Yellow 55 100 50 100 50 100 16 10 16 10 16 10 Required: Processing time required per box (hours) 12 5 12 5 12 5 4 10 8 10 10 10 Use appropriate traditional managerial accounting marginal analysis techniques to determine the optimal mix of imports in each month, then prepare the expected detailed income statement for each month and for the whole of the first quarter of 2021. Solution: January February March Red Yellow Red Yellow Red Yellow Maximum demand (boxes) 55 100 50 100 50 100 Selling price per box (LE 1000) 16 10 16 10 16 10 Variable cost per box (LE 1000) 12 5 12 5 12 5 Unit Contribution Margin (LE 1000) 4 5 4 5 4 5 (Processing time required per box (hours) 4 10 8 10 10 10 Contribution Margin/ Hour 1 0.5 0.5 0.5 0.4 0.5 Ranking 2nd 2nd 201 1st or or 2nd