Question
Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours.
Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 160 units (each) monthly. Slavin is currently producing 115 Alphas and 115 Deltas each month. Cost and machine-usage data for the two products are shown in the following table, which Slavin managers use for planning purposes: Alpha Delta Total Price $ 125 $ 150 Less variable costs per unit Material 17 34 Labor 24 36 Overhead 16 15 Contribution margin per unit $ 68 $ 65 Fixed costs Manufacturing $ 7,300 Marketing and administrative $ 4,300 $ 11,600 Machine hours per unit 2.0 2.5 Machine hours used 495 Machine hours available 500 Quantity produced 115 115 Maximum demand 160 160 Profit $ 3,695 Required: a. What is the optimal production schedule for Slavin? In other words, how many Alphas and Deltas should the company produce each month to maximize monthly profit? b. If Slavin produces at the level found in requirement (a), how much will monthly profit increase over the current production schedule?
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