Question

Kinnane's Fine Furniture manufactures two models, Standard and Premium. Weekly demand is estimated to be 106 units of the Standard Model and 74 units of the Premium Model. The following per unit data apply:

Standard Premium

Contribution margin per unit 2124

Number of machine-hours required 3 6

If there are 495 machine-hours available per week, how many rockers of each model should Kinnane produce to maximize profits?

Answer 1

To maximize profits, Kinnane's Fine Furniture should first prioritize production of Premium Models to meet demand or exhaust machine-hours, then produce Standard Models with remaining hours, ensuring not to exceed weekly demand or machine-hours.

Step-by-step explanation:

The question relates to the determination of the optimal production mix to maximize profits given limited machine-hours. To maximize profits for Kinnane's Fine Furniture, we need to calculate the number of Standard and Premium rockers that can be produced within the 495 machine-hours constraint. The Standard Model requires 3 machine-hours per unit, and the Premium Model requires 6 machine-hours per unit.

Let's denote the number of Standard Models to be produced as 'x' and Premium Models as 'y'. We can set up the following equations based on the information:

• 3x + 6y ≤ 495 (machine-hours constraint)
• x ≤ 106 (demand for Standard Models)
• y ≤ 74 (demand for Premium Models)

Since the contribution margin (profit per unit) is higher for the Premium Model, to maximize profits Kinnane should prioritize production of Premium Models until either the demand for Premium Models or the machine-hours constraint is met, then fill the remaining machine-hours with Standard Models.