Determine how many units of each product should be

Assignment Help Managerial Accounting

Reference no: EM133049414

Discussions

1. Describe the steps in solving a linear programming problem.
2. "Management should always maximize sales of the product with highest contribution margin unit." Do you agree? Why?

Exercises
1. A firm manufactures two products, A and B. There is only one machine with 3000 hours available per year. Each unit of product A requires 4 machine hours while each unit of Product B requires 3 machine hours. A summary of the profitability of each product is provided below.

	Product A	Product B
Selling price	$150	$120
Costs:
Direct material	$60	$15
Direct labour	$15	$25
Variable overhead	$15	$20

Maximum yearly demand for Products A is 600 units and for Product B is 800 units.

Required:
Determine how many units of each product should be produced to maximise yearly profit.

Problems

1. Della Simpson, Inc., sells two popular brands of cookies: Della's Delight and Bonny's Bourbon. Della's Delight goes through the Mixing and Baking departments, and Bonny's Bourbon, a filled cookie, goes through the Mixing, Filing, and Baking departments.

Michael Shirra, vice president for sales, believes that at the current price, Della Simpson can sell all of its daily production of Della's Delight and Bonny's Bourbon. Both cookies are made in batches of 3,000.

	Department Minutes
	Mixing	Filling	Baking
Della's Delight	30	0	10
Bonny's Bourbon	15	15	15
Total available per day	660	270	300

Revenue and cost data for each type of cookie are:

	Della's Delight	Bonny's Bourbon
Revenue per batch	$475	$375
Variable cost per batch	175	125
Contribution margin per batch	$300	$250
Monthly fixed costs (allocated to each product)	$18,650	$22,350

Required:

a) Using D to represent the batches of Della's Delight and B to present the bathes of Bonny's Bourbon made and sold each day, formulate the objective function to maximise the contribution margin.

b) Formulate the constraints.

c) Graph the constraints and determine how many batches of each type of cookie that Della Simpson, Inc., should make and sell each day to maximize the total contribution margin.

Reference no: EM133049414

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