Q2

Riteway currently produces and sells five different products. Total demand for the products exceeds the firms capacity to produce all of them. The constraint on production is the time available on a special machine. Data on the products and time required on the special machine are summarised in the following chart.

	Product A	Product B	Product C	Product D	Product E
Selling price	$12	$15	$18	$24	$32
Variable manufacturing cost	$8	$9	$11	$12	$18
Variable marketing cost	$1	$1	$3	$2	$6
Machine hours needed per unit	$0.2	$0.3	$0.25	$0.5	$0.4
Maximum unit demand per period	10,000	7,500	20,000	1,500	2,000

The firm has only 5500 hours of time available on the special machine per period. Fixed costs are $110,000 per period.

Sunshine company offers Riteway to supply and to market products A,B,C,D and E for $10,$12,$15,$15,$25 respectively.

Requirements

1. What is the production plan for each product to be produced and sold to maximize income? ( 10 marks)
2. What is the profit/loss of that production plan (2 marks)
3. If you were the consultant of this company, should you recommend Riteway to continue with the production plan or should Riteway take another strategy to improve the profit? (6 marks)