Optimizing Product Mix. California Products Company has the capability of producing and selling three products. Each product has an annual demand potential (at current pricing and promotion levels), a variable contribution, and an annual fixed cost. The fixed cost can be avoided in the product is not produced at all. This information is summarized as follows:
Product Demand Contribution Fixed Cost
I 290,000 $1.20 $60,000
J 200,000 $1.80 200,000
K 50,000 $2.30 55,000
Each product requires work on three machines. The standard productivities and capacities are as follows:
Hours per 1,000 Units
Machine Product I Product J Product L Available
A 3.205 3.846 7.692 1,900
B 2.747 4.808 6.41 1,900
C 1.923 3.205 9.615 1,900
a. Determine which products should be produced, and how much of each should be produced, in order to maximize profit contribution from these operations.
b. Suppose the demand potential for product K were doubled. What would be the maximum profit contribution?
Solution explains which products should be produced, and how much of each should be produced, in order to maximize profit contribution from these operations.and calculation of the maximum profit contribution.