Problem 4-60 Optimum Product Mix-Excel Solver (LO 4-4)

Layton Machining Company (LMC) manufactures two versions of a basic machine tool. One version is a standard model and one is a custom model, which requires some additional work and slightly higher-grade materials. The manufacturing process at LMC requires that each product go through two departments, Grinding and Finishing. The process in each department uses a single type of machine. Total machine capacity in Grinding is 84,000 hours, and in Finishing, total machine capacity is 64,500 hours. (Each department has multiple machines.) Total market demand is limited to 168,000 standard units and 188,000 custom units monthly. LMC is currently producing 158,000 standard units and 121,000 custom units each month. Cost and machine-usage data for the two products follow:

	Standard		Custom			Total
Price	$	8.70	$	10.70
Less variable costs per unit
Material		2.40		2.90
Labor		2.10		2.35
Overhead		2.60		3.35
Contribution margin per unit	$	1.60	$	2.10
Fixed costs
Manufacturing					$	93,000
Marketing and administrative						54,000
					$	147,000
Grinding machine hours per unit		0.2		0.3
Finishing machine hours per unit		0.1		0.4
Grinding machine hours used						67,900
Grinding machine hours available						84,000
Finishing machine hours used						64,200
Finishing machine hours available						64,500
Quantity produced		158,000		121,000
Maximum demand		168,000		188,000
Profit	$	359,900

Required:
a.	How many standard units and custom units should the company produce each month to maximize monthly profit?

b.	If the company produces at the level found in requirement (a), how much will monthly profit increase over the current production schedule?