Optimal Production Mix Calculation.
Optimal Corporation produces two products, A and B. Management wants the product mix to maximize the contribution toward fixed costs and profits given the existence of constraining resources. The contribution and constraining resources of the products are as follows:
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Product A
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Product B
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Contribution margin per unit
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$9
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$8
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Machine time per unit
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3 hours
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6 hours
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Supervisory time per unit
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2 hours
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2 hours
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Machine time is limited to 24,000 hours per period, and supervisory time is limited to 12,000 hours per period.
a) What is the optimal production mix for products A and B?
b) What is the production mix at each corner point beyond the feasible production region (i.e., assuming you could produce at these coordinates)?
c) Management could increase machine time by 6000 hours. What is the maximum expenditure management would be willing to make in order to expand this constraint?