Question

WJE Company has only 4,000 machine hours available each month. The following information on the company’s three products is available: Product AA Product BB Product CC Contribution margin per unit $10. 00$13. 00$5. 00 Machine hours per unit 21. 50. 5 If demand exceeds the available capacity, in what sequence should orders be filled to maximize the company’s profits? A. Product AA first, product BB second, and product CC third B. Product BB first, product AA second, and product CC third C. Product CC first, product BB second, and product AA third D. Product CC first, product AA second, and product BB third

Answer 1

The sequence in which orders should be filled to maximize the company's profits when the demand exceeds the available capacity is D. Product CC first, product AA second, and product BB third.

How to determine order sequence based on contribution per limited resources?

When the order sequence is based on a limited resource, the contribution margin per unit should be turned into the contribution margin per usage of the limited resource.

Data and Calculations:

Available machine hours per month = 4,000 hours

                                                        Product AA   Product BB     Product CC

Contribution margin per unit               $10.00         $13.00               $5.00

Machine hours per unit                             21.              50.                    5

Contribution margin per machine hour   $0.48       $0.26            $1.00 ($5/5)

Thus, the sequence in which orders should be filled to maximize the company's profits when the demand exceeds the available capacity is Option D.

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