Scarce Resource Usage
E 10. EZ, Inc. manufactures two products that require both machine processing and labor operations. Although there is unlimited demand for both products, EZ could devote all its capacities to a single product. Unit prices, cost data, and processing requirements follow.
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Product E
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Product Z
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Unit selling price
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$70
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$230
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Unit variable costs
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$30
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$90
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Machine hours per unit
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0.4
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1.4
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Labor hours per unit
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2.0
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6.0
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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 1.