Question

Santora Company manufactures two productslong dash—toaster ovens and bread machines. The following data are​ available:

- Toaster Ovens Bread Machines
Sales price $ 60 $150
Variable costs $ 50 $ 60
Santora can manufacture six toaster ovens per machine hour and four bread machines per machine hour.​ Santora's production capacity is 2,0002 machine hours per​ month, and it can sell as many units of either type as it can produce.
Which product and how many units should the company produce in a month to maximize​ profits? (Round machine hour per unit to two decimal places and your final answer to the nearest whole​ dollar.)

Answer 1

In order to maximize profits, Santora Company should produce bread machines and should produce 200 units per month.

Step-by-step explanation:

In order to maximize profits, Santora Company should produce the product that has the highest contribution margin per machine hour. This can be calculated by subtracting the variable cost per unit from the sales price per unit. The contribution margin per machine hour for toaster ovens is $10 per unit ($60 sales price - $50 variable cost) and for bread machines is $90 per unit ($150 sales price - $60 variable cost).

To determine the number of units that should be produced, we need to compare the contribution margin per machine hour for each product. Since six toaster ovens can be produced per machine hour, the contribution margin per machine hour for toaster ovens is $60 ($10 per unit x 6 units). Since four bread machines can be produced per machine hour, the contribution margin per machine hour for bread machines is $360 ($90 per unit x 4 units).

Therefore, to maximize profits, the company should produce bread machines and should produce 200 units per month, which equals the production capacity of 2,000 machine hours divided by 4 units per machine hour.

Answer 2

Thus to maximize profit, Santora Company should manufacture Bread machine only.

The unit of Bread machine can be produced in 2,000 machine hours is 8,000 units

Step-by-step explanation:

The profit for Toaster Ovens and Bread Machines is $10 and $90 respectively; thus

six toaster ovens per machine hour will generate profit of $60 = ($10 *6)

four bread machines per machine hour will generate profit of $360 = ($90 *4)

In the same machine hour the profit from Bread machines are significantly higher then Toaster over. Thus to maximize profit, Santora Company should manufacture Bread machine only.

The unit of Bread machine can be produced in 2,000 machine hours is 8,000 units (= 2,000 * 4)

The profit for 8,000 units of Bread machine is $720,000 = (8,000 * $90)