Dancer industries have assembled the following data relating to its two most popular models of electric shaver:

	Standard	Advanced
	$ per unit	$ per unit
Selling price	88	130
Direct material	18	33
Direct labour	12	31
Manufacturing overhead @$48 per machine hour	48	96
Monthly demand (units)	26000	28000

The fixed manufacturing overhead component included in the above unit costs is $30 per machine hour. On the first day of May, a major piece of manufacturing equipment was damaged, and it will take four weeks for replacement parts to arrive from Europe. Thus, during May, there are only 60000 machine hours available to manufacture the two models of shavers.

Required:

1. Determine how many units of each product should be produced in May, to maximise the profitability of the limited resource of machine-hours.
2. Management has an opportunity to purchase a partially manufactured component that can be used in the advanced model of the shaver. This will reduce the total variable cost of the advanced model to $40 per unit. Assuming that all other information in the question remains unchanged, determine how many units of each product should be manufactured in May, to maximise the profitability of the 60000 machine hours.

Solution