GZ Inc. manufactures two products that require both machine processing and labor operations. Although there is unlimited demand for both products, GZ could devote all its capacities to a single product. Unit prices, cost data, and processing requirements follow.
- Product G Product Z
- Unit selling price $70 $230
- Unit variable costs $30 $90
- Machine hrs. per unit .4 1.4
- Labour hrs. per unit 2.0 6.0
Next year, the company will be limited to 160,000 machine hours and 120,000 labor hours. Fixed costs for the year are $1,500,000.
1. Compute the most profitable combination of products to be produced next year.
2. Prepare an income statement using the contribution margin format for the product volume computed in problem 1.