Question

The contribution margin per unit is $10 for product X and $15 for product Y. It takes 2.5 hours to produce each unit of Product X and 3 hours to produce each unit of product Y. Fargo has maximun production capacity of 25,000 machine hours and the demand for products X and Y is a maximum of 5,000 units each. How many units of product X and units of Product Y should be produced?

Answer 1

X = 4,000 units

Y = 5,000 units

Explanation:

The production of X gives $ 10 / 2.5 = $ 4 per hour.

The production of Y gives $ 15 / 3 = $ 5 per hour.

Therefore the production of Y gives a better contribution margin per hour and you should produce the maximum units of Y before producing X.

Time needed to produce 5,000 units of Y:

t = 5,000 * 3 = 15,000 hours.

The total capacity in machine hours is 25,000, the time available to produce X is :

25,000 - 15,000 = 10,000 hours.

And the units of X produced in 10,000 hours is:

units of X = 10,000 / 2.5 = 4,000 units.