Question: Going back to Activity, what is the maximum price that the business concerned would logically be prepared to pay to have the remaining B14s machined by a subcontractor, assuming that no fixed or variable costs would be saved as a result of not doing the machining in-house? Would there be a different maximum if we were considering the B22s?
A business makes three different products, the details of which are as follows:
Product (code name) B14 B17 B22
Selling price per unit (£) 25 20 23
Variable cost per unit (£) 10 8 12
Weekly demand (units) 25 20 30
Machine time per unit (hours) 4 3 4
Fixed costs are not affected by the choice of product because all three products use the same machine. Machine time is limited to 148 hours a week. Which combination of products should be manufactured if the business is to produce the highest profit?