Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hours per year. Product Reno has a unit contribution margin of $120 and requires 4 hours of painting department time. Product Tahoe has a unit contribution margin of $78 and requires 3 hours of painting department time. There are no other constraints. What is the optimal mix of products?

Question

Cael Harvey

Business

2 October, 10:17

Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hours per year. Product Reno has a unit contribution margin of $120 and requires 4 hours of painting department time. Product Tahoe has a unit contribution margin of $78 and requires 3 hours of painting department time. There are no other constraints. What is the optimal mix of products?

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Answers (1)

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Mila Nash · Answer 1

Optimal mix

Reno = 615 units

Tahoe = 0 units

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 painting hr / unit cont/hr Ranking

Reno $120 4 30 Ist

Tahoe $78 3 26 2nd

The company should use all of its limited 2,460 painting hours to produce the two products as follows:

Reno

= 2460/4

= 615 units of Reno

This is so as long as Billings Company can produce and sell as many units of Reno as it can produce.

Optimal mix

Reno = 615 units

Tahoe = 0 units