A company makes two products, A and B. A sells for $25 per unit and B sells for $35 per unit. the variable cost per unit of A is $ 17.50 and B $ 20. Each unit of A uses 2 kg of raw material. Each of B uses 3 kg of raw material. the availability of raw material is limited to 2000 kg. A company is contracted to supply 500 units of A. Maximum demand for the B is 250 units. Demand for the A is unlimited. how many unit of A will be produced in the profit maximising product?
Make product B first 250 × 3 = 750
2000 – 750 = 1250 kg material left.
For A 1250/2 = 625
A: contribution per unit 7.50. Contribution per kg of material = 7.5/2 = 3.75
B: contribution per unit 15.00. Contribution per kg of material = 15/3 =5
Therefore, after making the required 500 units of A, which uses 1000kg material, switch to making B as it has a better earning rate per kg of material.
250 x 3 = 750 kg used, leaving 250 kg
This is enough to mak another 125 units of A. 500 have to be made then another 125, so 625 in total.
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