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Optimal Mix
Two types of gears are produced: A and B. Gear A has a unit contribution margin of $200, and Gear B has a unit contribution margin of $400. Gear A uses two hours of grinding time, and Gear B uses five hours of grinding time. There are 200 hours of grinding time available per week. This is the only constraint.
Required
1. Is the grinding constraint an internal constraint or an external constraint?
2. Determine the optimal mix. What is the total contribution margin?
3. Suppose that there is an additional demand constraint: market conditions will allow the sale of only 80 units of each gear. Now, what is the optimal mix? The total contribution margin?
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