Problem:
Novelene's Novelties manufactures Green Bay Packer cheese heads (small, medium, and large) that are sold to area retailers. Production takes 0.20, 0.25, and 0.30 machine hours to manufacture one unit of the small, medium, and large cheese heads, respectively. The company has monthly capacity of 2,500 machine hours. The following per unit data apply for the month of August:
Small Medium Large
Projected maximum sales 2,500 4,000 3,000
Machine hours required 0.20 0.25 0.30
Selling price $30 $36 $42
Direct materials 8 10 12
Direct labor 3 3 4
Variable support costs 4 5 5
Fixed support costs 2 2 2
Q1. How many units of each should be produced to maximize profits?
Q2. Suppose a foreign firm places a special order for the purchase of an additional 1,000 medium cheese heads at $50 each. Determine the opportunity cost for this order.
Q3. Suppose available machine hour capacity is reduced to 2000 machine hours due to machine breakdown. How many units of each size should Novelene's produce to maximize profits.