Problem 4

Able sells three products that use the same machine and there is a scarcity of hours available on the machines. Only 50,000 hours are available and total fixed expenses are $1,100,000. Below is information regarding the products:

A B C

Sales Price $200 $180 $170

Variable Expense 100 90 100

Contribution Margin 100 90 70

Machine Hours/Unit 4 5 2

Demand 4,000 5,000 8,000

Required: Determine the order the products should be made in and how much should be made and what the overall operating income will be.

What should we do and how much income will be earned if the optimum mix is used?