1.

The following data were taken from the records of Wizard

Company which produces and sells three products- A, B, and
C.
Estimated
Time Market
Selling Variable Required to Demand
Product Price/Unit Cost/Unit Process/unit (in
Units)
A P30 P15 8 hrs 10,000
B 20 11 3 hrs 4,000
C 50 30 10 hrs 5,000

The plant’s theoretical capacity is 110,000 hours. Per

estimate, 8,000 hours have to be provided for unavoidable
interruptions such as brownouts, oiling, and cleaning,
setting up of machines, and machine breakdowns.
a. Which product has the highest profitability?
b. How will you rank the products based on profitability?
c. What product (s) must be produced and in what quantity
must each be produced to maximize profits?
d. Should the Company produce also the least profitable
product? If yes, in what quantity must the least
profitable product be produced and why?

Solution:

Theoretical Capacity - 110,000 hours

Less: Allowance for delays 8,000 hours
Practical Capacity 102,000 hours

Reqd
Product SP/unit VC/unit CM/unit Time CM/hour Rank

A 30 15 15 8 1.875 3 (15/8)
B 20 11 9 3 3.00 1 (9/3)
C 50 30 20 10 2.00 2 (20/10)

Product Mix Time Required Units CM/unit Total CM

B 12,000 4,000 9 P 36,000

C 50,000 5,000 20 100,000
A 40,000 5,000 15 75,000
Total 102,000 P211,000
2. The Wise Company manufactures and sells three different
products. It uses one machine only in producing the
products, one at a time. Its normal factory capacity is
10,000 machine-hours per month. For a unit of product,
the following data are given:

Selling Price Variable Cost

Product Per Unit Per Unit Machine Time
A P 15.00 P 10.20 2 hrs.
B 20.00 15.80 20 mins.
C 6.00 5.00 1 hr.

At present, the market can absorb 2,500 units of

product A, 10,000 units of product B, and 12,000 units of
Product C.

a) Determine the most profitable product mix.