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Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,505 hours per year. Product Reno has a unit contribution margin of $125 and requires five hours of painting department time. Product Tahoe has a unit contribution margin of $78 and requires three hours of painting department time. There are no other constraints.

Required:
a. What is the contribution margin per hour of painting department time for each product?
b. What is the optimal mix of products?
c. What is the total contribution margin earned for the optimal mix?

Sagot :

Explanation:

1) Contribution per labor hour = Unit contribution / Painting hours Reno = 120 / 5 = 24 per hour Tahoe = 75 / 3 = 25 per hour 2) Optimal product mix: Since Tahoe has higher contribution per labor hour and there is no constraint therefore we should produce Tahoe to the maximum possible. Accordingly Tahoe units

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