Question: Short Inc has 6,000 machine hours available each month. The following information on the company's three products is available: Product 1 Product 2 Product 3
Short Inc has 6,000 machine hours available each month. The following information on the company's three products is available:
|
| Product 1 |
| Product 2 |
| Product 3 | ||||||
| Selling price | $ | 90.00 |
|
|
| 80.00 |
|
|
| 50.00 |
|
| Variable cost per unit |
| 30.00 |
|
|
| 54.00 |
|
| $ | 26.00 |
|
| Machine hours per unit |
| 5 |
|
|
| 2 |
|
|
| 1.5 |
|
| Sales demand in units |
| 500 |
|
|
| 1,000 |
|
|
| 2,000 |
|
Required: a. What production schedule will maximize the company's profits?
b. What will be the maximum possible contribution margin?
c. The company has an option of buying an additional machine for $55,000 to increase the total machine hours to 8,000. Assuming that this machine will last for 3 years and have no resale value at the end of its life, should the company buy this machine?
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