Santana Rey has found that her line of computer desks and chairs has become very popular and she is finding it hard to keep up with demand. She knows that she cannot fill all of her orders for both items, so she decides she must determine the optimal sales mix given the resources she has available. Information about the desks and chairs follows.
Desks Chairs
Selling price per unit $ 1,166.25 $ 318.00
Variable costs per unit 500.00 130.00
Contribution margin per unit $ 666.25 $ 188.00
Direct labor hours per unit 5 hours 4 hours
Expected demand for next quarter 174 desks 46 chairs
Santana has determined that she only has 994 direct labor hours available for the next quarter and wants to optimize her contribution margin given the limited number of direct labor hours available.
Required:
Determine the optimal sales mix and the contribution margin the business will earn at that sales mix