Problem: Pricing and Product Mix
Seventh Heaven provides event planning services, offering three event packages (Core, Fair and Fusion) and customised services for clients who want to design an event from scratch. Seventh Heaven's capacity is limited by its available labour hours, where only 1,150 labour hours are available each month. The business pays its workers $25 an hour and estimates that $17,000 of materials are used each month.
The forecasted demand, revenue, costs and resources required for the next month are as follows:
|
|
Core
|
Fair
|
Fusion
|
|
Estimated demand
|
13
|
10
|
12
|
|
Total revenue
|
$ 26,000
|
$ 22,000
|
$ 36,000
|
|
Total variable costs
|
$ 14,300
|
$ 14,000
|
$ 24,000
|
|
Allocated fixed costs
|
|
|
|
|
Material handling and storage
|
$ 3,800
|
$ 4,000
|
$ 4,400
|
|
Office employee's salary and benefits
|
$ 2,000
|
$ 2,000
|
$ 2,000
|
|
Other overhead costs
|
$ 500
|
$ 500
|
$ 500
|
|
Labour hours required per event
|
30
|
40
|
40
|
Task
Suppose Seventh Heaven does not provide customised services and only offers the three event packages. Determine how many instances of Core, Fair and Fusion should be provided to maximise profitability.