Twisting Woolcurrently produces and sells three different types of yarn. The total demand forthewireexceedsthecompany'scapacity.Theconstraintonproductionisthetimeavailableon a special machine that cleans the wool used for the yarn. Product data and timerequired on thespecialmachinearesummarizedin the following table:

The company has only 2,500 hours of time available on the special machine per period. Fixed costs are $100,000 per period, which will not change if the composition of the product changes or products are removed.

 

required:

1)               Due to the constraint in  terms  of  available  machine hours to which  Twisting    Wool  faces,  which  product  generates  the    highest,    second  highest    and  lowest   contribution margin per unit of the constrained resource. Show your calculations. 

2)               What product mix will maximize Twisting Wool's operating income? Show  your  calculations. 

Type of wire end Medium big Sales prices $24 $30 $36 Unit variable FGF $12 $18 $11 Variable marketing cost $2 $2 $6 Fixed fee per lot $5 $8 $10 Machine hours required per batch 0.2 0.25 0.5 Maximum demand (in batches) per period 4,000 3,750 5,000