This comes from my management accounting text, fouth edition by Kaplan, Atkinson, and Young.
I attached my homework problem in the spreadsheet.
Product Mix and overtime decisions
Excel corporation makes 3 products at its plants. The plant capacity is limited
to 120,000 machine hours per year on a single shift basis. Direct material and direct
labor costs are flexible. The following data are available for planning purposes:
a.) Given the capacity constraint, determine the production levels for the three
products that will maxmize profits.
b.) If the company authorizes overtime, direct labor cost per unit will be higher by 50%
due to the overtime premium. Materials cost and flexible support cost per unit will be the same
for overtime production as regular production. Is it worthwhile operating overtime?
Total Unit demand for next year
1. In order to determine the maximum profit, we need to calculate the contribution margin per machine hour (since the constraint is the machine hour). Products with the highest contribution margin should be taken up and first and then the others. We get ...
The solution explains how to calculate the production level such that profits are maximized.