PRODUCT MIX DECISION, SINGLE CONSTRAINT

Sealing Company manufactures three types of DVD storage units. Each of the three types requires the use of a special machine that has a total operating capacity of 15,000 hours per year. Information on the three types of storage units is as follows:

Basic Standard Deluxe

Selling price $9.00 $30.00 $35.00

Variable cost $6.00 $20.00 $10.00

Machine hours required 0.10 0.50 0.75

Sealing Company's marketing director has assessed demand for the three types of storage units and believes that the firm can sell as many units as it can produce.

Required:

1. How many of each type of unit should be produced and sold to maximize the company's contribution margin? What is the total contribution margin for your selection?

2. Now suppose that Sealing Company believes that it can sell no more than 12,000 of the deluxe model but up to 50,000 each of the basic and standard models at the selling prices estimated. What product mix would you recommend, and what would be the total contribution margin?