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XYZ Company produces three products, A, B, and C. XYZ's plant capacity is limited to 48,000...

Question

XYZ Company produces three products, A, B, and C. XYZ's plant capacity is limited to 48,000...

XYZ Company produces three products, A, B, and C. XYZ's plant capacity
is limited to 48,000 machine hours per year. The following information
is available for planning purposes:

Product A Product B Product C
demand for next year ............. 21,000 units 28,000 units 35,000 units
selling price per unit ........... $80 $120 $160
direct material cost per unit .... $24 $ 22 $ 36
direct labor cost per unit ....... $18 $ 50 $ 62
variable overhead cost per unit .. $22 $ 25 $ 33

It takes 0.80 machine hours to produce one unit of Product A; 1.20 machine
hours to produce one unit of Product B; and 1.60 machine hours to produce
one unit of Product C.

Assume that XYZ Company can work its plant overtime for 8,000 additional
machine hours. Overtime premiums will add 50% to direct labor costs.

Calculate the total number of units of Product C that XYZ Company should
produce in order to maximize its net income.

Answers

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Product A Product B Product C
Demand for the next Year           21,000           28,000          35,000
Selling price per unit $               80 $            120 $            160
Direct material cost per unit $            (24) $            (22) $            (36)
Direct labor cost per unit $            (18) $            (50) $            (62)
Variable overhead cost per unit $            (22) $            (25) $            (33)
Gross Margin per unit a $               16 $               23 $              29
Machine Hours per unit b               0.80               1.20               1.60
Gross Margin per Machine hour a/b $         20.00 $         19.17 $        18.13
Ranking I II III
Total
Production           21,000           28,000
Hours used           16,800           33,600          50,400
Available Hours (48,000+8,000)          56,000
Hours available for Product C             5,600
Machine Hours per unit               1.60
No of Product C to be produced 5,600 Hours/1.60             3,500 Unit of C


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