Lawn Mate Company produces two types of lawnmowers, A and B. While the company has spare machine-hours there is always a shortage in direct labour hours. The general manager calls a meeting of selected managers to discuss the company’s product mix and asks you to attend. At the meeting, there is some disagreement on the subject. The sales manager points out, ‘there is a larger contribution margin on Product A, and therefore the company should manufacture only A’. The factory manager argues, ‘Both products are well accepted in the marketplace and both take the same amount of machining time. Consequently, we should produce equal quantities of A and B to use up factory capacity. The finishing manager argues, ‘Product B only takes half as long direct labor time to finish as A, but its contribution margin is not much less than A’s. Therefore, it is logical to concentrate on B, producing the maximum number possible, and devoting any surplus capacity to A’. Required: The General Manager asks you to discuss what will be the optimal product mix and comment on the each of three managers’ suggestions.

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In the given case Direct Labour is a limiting factor or resource whereas Machine Hours are available ... View the full answer