What production plan should the company follow

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Reference no: EM13920550

A company produces two products, Tatty and Messy, which have the following production costs.

	Tatty	Messy
	$	$
Direct material cost	12	12
Direct labour cost	6	10
Variable overhead	6	10
Fixed overhead	6	10
Total product cost	30	42

Fixed overheads are absorbed on the basis of direct labour cost. Tatty and Messy pass through two processes, blasting and smoothing which incur direct labour time as follows.

Time taken

Process	Tatty	Messy
Blasting	15 mins	25 mins
Smoothing	25 mins	20 mins

The current market price for Tatty is $75 and for Messy $60 and, at these prices, customers will buy as many units as are available.

The capacity of the two processes limits the amount of units of products that can be produced. Blasting can be carried out for 8 hours per day but smoothing can only operate for 6 hours per day.

Required

What production plan should the company follow in order to maximise profits?

(a) Using contribution per minute

(b) Using throughput per minute

Reference no: EM13920550

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