Final answer:
After calculating the contribution per machine hour for each product offered by M.Omran Ltd, the Economy product has the highest contribution per machine hour at £6.67, suggesting that the company should produce the Economy product to maximize its profits.
Step-by-step explanation:
To determine which product M.Omran Ltd should produce to maximize profits given the machine time limitations, we need to calculate the contribution per unit of machine time for each product. The contribution per unit is the selling price minus the variable costs. We then divide this by the machine time required to produce one unit of the product to find the contribution per machine hour.
- Economy: (40 - 20) / 3 = £20 / 3 hours = £6.67 per machine hour
- Standard: (65 - 30) / 7 = £35 / 7 hours = £5 per machine hour
- De Luxe: (85 - 45) / 10 = £40 / 10 hours = £4 per machine hour
- Super: (100 - 70) / 10 = £30 / 10 hours = £3 per machine hour
Based on these calculations, the Economy product has the highest contribution per machine hour and therefore, M.Omran Ltd should focus on producing the Economy product to maximize its profits.
It's important to note that while fixed costs are provided, they do not affect the decision on which product to produce to maximize profits because fixed costs remain constant, regardless of which product is made.