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5 November, 08:03

A company produces two products, A and B. It has limited capacity but unlimited demand so it can sell as many of either product as it produces. Product A requires 2 machine hours per unit to produce, and Product B requires 1 machine hour to produce. Product A sells for $6 per unit and has variable costs of $2 per unit; Product B sells for $5 per unit and has variable costs of $2 per unit. What is the most profitable sales mix for the company?

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  1. 5 November, 08:29
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    The company should use all of its limited machine hour to produce only product B. This will make it maximize profit

    Explanation:

    Whenever a company is faced with a limiting factor i. e a resource in short supply, the company should allocate the resource to the product with he highest contribution per unit of the scare resource

    Product Cont/unit machine hr / unit cont/hr Ranking

    A 6-2 = $4 per unit 2 hours $2 per hour 2nd

    B 5-2 = $3 per unit 1 hour $3 per hour 1st

    The company should use all of its limited machine hour to produce only product B. This will make it maximize profit
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