Outsourcing/Maximizing profit
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Novelene's Novelties manufactures Green Bay Packer cheese heads (small, medium, and large) that are sold to area retailers. Production takes 0.20, 0.25, and 0.30 machine hours to manufacture one unit of the small, medium, and large cheese heads, respectively. The company has monthly capacity of 2,500 machine hours. The following per unit data apply for the month of August:
Small Medium Large
Projected maximum sales 2,500 4,000 3,000
Machine hours required 0.20 0.25 0.30
Selling price $30 $36 $42
Direct materials 8 10 12
Direct labor 3 3 4
Variable support costs 4 5 5
Fixed support costs 2 2 2
c. How many units of each should be produced to maximize profits?
d. Suppose a foreign firm places a special order for the purchase of an additional 1,000 medium cheese heads at $50 each. Determine the opportunity cost for this order.
e. Suppose available machine hour capacity is reduced to 2000 machine hours due to machine breakdown. How many units of each size should Novelene's produce to maximize profits
I have started c and not sure if it's correct:
Product mix to maximize profit is
Small = 2,500 units
Medium = 4,000 units
Large = 3,333 units
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Solution Summary
Excel file contains calculations of number of units of each should be produced to maximize profitsand opportunity cost of accepting the special order .
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