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Production with resource constraint

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Dvorak Music produces two durable music stands:

Stand A Stand B
Selling price $90 $80
Less variable costs 30 44
Contribution margin $60 $36

Stand A requires 6 labor hours and stand B requires 3 labor hours.The company has only 350 available
labor hours per week. Further, the company can sell all it can produce of either product.

Required

a. Which stand(s) should the company produce?

b. What would be the incremental benefit of obtaining 15 additional labor hours?

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Solution Summary

The solution explains how to determine the production mix in a situation of resource constraint.

Solution Preview

a. In a situation of constraint, we produce the product which has a higher contribution margin per unit of constraint. This maximizes the overall contribution ...

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