Practice 4:

Port-a-Home Ltd (PL) produces two lines of mobile homes: Doublewide and singlewide. Unit cost and revenue data pertaining to each product are shown below:

Cost Double Wide: Single Wide

Selling Price $70000 $40000

Total Variable Costs $45000 $20000

Each doublewide home requires 350 different labor hours and 125 machine hours. Each singlewide home requires 175 direct labor hours and 150 machine hours. Demand for each line of homes far exceeds the company's total production capacity.

(a)If PL's production capacity is constrained by limited direct labor hours, which line of homes should it produce?

(b)If PL's total production capacity is constrained by machine hours, which line of homes should it produce?

Assume PL now has a labor capacity for the coming year of 875,000 hours.New market information has determined that the demand for single-wide trailers will be 3000 and the demand for double-wide trailers will be 2000 for the coming year.(Assume machine hours is not a constrained resource.)What should PL's production schedule look like for the coming year?What production mix would optimize profits?