Question

The Kitchen Company makes toaster ovens and bread machines. Toaster ovens Sales price per unit: $60 Variable costs per unit: $38 Machine hours required per unit: 1 hr Bread machines Sales price per unit: $135 Variable costs per unit: $75 Machine hours required per unit: 2 hrs Machine hours is the limited resource. The company's production capacity is 15,000 machine hours. To maximize profits, the Kitchen Company should produce:

Answer 1

The company should produce 7,500 bread machines to maximize profit

Step-by-step explanation:

Given:

Toaster Ovens Bread Machines

Sales Price per unit 60 135

Less: variable cost per unit 38 75

Contribution Margin per unit 22 60

Machine hours per unit 1 2

Now,

Contribution Margin per Machine Hour =
`\frac{\textup{Contribution Margin per unit}}{\textup{Machine hours per unit}}`

thus,

Contribution Margin per Machine Hour 22 30

Since,

The Contribution Margin per Machine Hour for the bread is more, therefore to maximize profits the kitchen company should produce Breads machines.

also,

Number of units to be produced =
`\frac{\textup{Machine hours}}{\textup{Machine hours required}}`

=
`\frac{\textup{15,000}}{\textup{2}}`

= 7,500 units