Step-by-step answer to Profit Maximization
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ABC Co has 200 labor hours available. There is no limit on machine hours. ABC can sell all of Y it wants, but can only sell a maximum of 30 units of X and 20 units of Z.
x y z
Contribution Margin per Unit $20 $10 $16
Labor Hours per Unit 4 5 4
Machine Hours per Unit 10 8 2
To maximize profits how many of each product should ABC make?
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We first need to determine the contribution margin per unit of constrained resource. Labor hours is the constrained resource here as we have a maximum of 200 hours.
Contribution Margin ...
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