Product Mix Decision Aramis Aromatics Company sells its product AA100 to cosmetics companies for $940 per ton. The marketing manager is considering refining AA100 into finer perfumes. Product AA101 is expected to command a price of $1,500 per ton, and AA102, a price of $1,700. The maximum expected demand is 400 tons for AA101 and 100 tons for AA102. The annual plant capacity of 2,400 hours is fully utilized at present to manufacture 600 tons of AA100. The marketing manager proposed that Aramis sell 300 tons of AA100, 100 tons of AA101, and 75 tons of AA102 in the next year. It requires 4 hours of capacity to make 1 ton of AA100, 2 hours to refine 1 ton of AA100 further into AA101, and 4 hours to refine 1 ton of AA100 into AA102.

1. Determine the production levels for the three products under the present constraint on plant capacity that will maximize total contribution.

AA products: COST ITEM Direct materials: Chemicals and fragrance AA100. Direct labor. Manufacturing overhead: Variable. Fixed.. Total manufacturing costs. Selling costs: Variable.. Fixed. Total cost Proposed sales level Maximum demand AA100 $560 0 60 60 120 $800 20 10 $830 300 tons 600 tons COSTS PER TON AA101 $ 400 800 30 30 60 $1,320 30 10 $1,360 100 tons 400 tons AA102 $ 470 800 60 60 120 $1,510 30 10 $1,550 75 tons 100 tons