## Question

###### (1) Hanson Company has forecast a demand of 10,000 units per month. Which product(s) should Hanson...

(1) Hanson Company has forecast a demand of 10,000 units per month. Which product(s) should Hanson manufacture 10,000 units of to maximize its profits?

(2)Assume that skilled technicians are in short supply so that the total labor hours each month is restricted to 24,000 hrs. How many units of each type should Hanson manufacture (assuming it can sell all it can manufacture)?

(3)Assume that the company can hire any number of skilled technicians, but the machine hrs. are limited to 24,000 hrs. per month. How many of each units should Hanson manufacture (assuming it can sell all it can manufacture)?

(4)Assume that both resources are limited, so that the capacities of each of machine hrs. and labor hrs. are restricted to 24,000 hrs. per month. Now, how many units of each type should Hanson manufacture (assuming it can sell all it can manufacture)?

## Answers

Answer (1) Calculation of Contribution from each product

ParticularsRegularPremiumLuxurySales Price(A)550600680Less- Variable CostProcessing Plant Costs ($20 per hour) 200 120 60 Skilled Technicians Costs ($50 per hour) 200 300 500 Total Variable Costs (B)400420560Contribution per unit (C) = (A) - (B)150180120Ranking(II) (I) (III) Since, Premium version will give maximum contribution per unit, All 10,000 units of Premium version is prodused first.

Answer (2) Product ranking as per skilled technician hours is limited

ParticularsRegularPremiumLuxuryContribution per unit (A)150180120Skilled technician hour per unit 4 6 10 Contribution per unit per Skilled technician hour37.53012Ranking(I) (II) (III) Since, Skilled technician hours are constraint factor, Hanson company will produce that version which gives maximum Contribution per unit per Skilled technician hour i.e. Regular Product.

Total Skilled labour hour = 24,000

Total Units of Regular version be produced = 24000/4 = 6000 units.

Answer 3) Product ranking as per Machine Processing hours is limited

ParticularsRegularPremiumLuxuryContribution per unit (A)150180120Machine Processing hour per unit 10 6 3 Contribution per unit per Machine Processing hour153040Ranking(III) (II) (I) Since, Machine Processing hours are constraint factor, Hanson company will produce that version which gives maximum Contribution per unit per Machine Processing hour i.e. Luxury Product.

TotalMachine Processing hour = 24,000

Total Units of lUXURY version be produced = 24000/3 = 8000 units.

Answer 4) Product ranking if both Machine Processing hours and Skilled Labour hour is limited-

ProductMachine Processing hours is limitedSkilled techician hour is limitedMaximum Permissible UnitsHours/UnitTotal HoursUnitHours/UnitTotal HoursUnitRegular10 24,000 2,400 4 24,000 6,000 2,400 Premium6 24,000 4,000 6 24,000 4,000 4,000 Luxury3 24,000 8,000 10 24,000 2,400 2,400

Calculation of Contribution based of maximum permissible units

ParticularsRegularPremiumLuxuryMaximum Permissible units (A)240040002400Contribution per unit (B) 150 180 120 per Machine Processing hour (C) = (A) * (B)3,60,0007,20,0002,88,000Since, Both Machine Processing hours and skilled technician hours are constraint factor, Hanson company will produce that version which gives maximum Contribution i.e. Premium Product. Whole capcity will be utilised in production of Premium product.