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Unformatted text preview: sts to sell another 333 units (1000 pounds ÷ 3 pounds per unit) of C657. If not, then the maximum price falls to an addit ional $4 per pound (the contribution margin per pound of A110) so that Westford can produce up to 125 more units of A110 (1,000 pounds ÷ 8 pounds per unit). In this case, Westford would be willing to pay $3 + $4 = $7 per pound. If there is insufficient demand to sell another 125 units of A110, then the maximum price West ford would be willing to pay falls to an additional $2.80 per pound (the contribution margin per pound of B382). West ford would be willing to pay $2.80 + $3 = $5.80 per pound of Bistide. 1 An alternative calculation focuses on column 3 for C657 of the table in requirement 1. Selling price Variable labor and other costs (excluding direct materials) Contribution margin Divided by pounds of direct material per unit Direct material cost per pound that Westford can pay without contribution margin becoming negative $70 40 $30 ÷3 lbs. $10 1134 1140 (30–40 min.) Optimal product mix. 1. Let D represent the batches of Della’s Delight made and so ld. Let B represent the batches of Bonny’s Bourbon made and so ld. The contribut ion margin per batch of Della’s Delight is $300. The contribut ion margin per batch of Bonny’s Bourbon is $250. The LP formulat ion for the decisio n is: Maximize $300D + $250 B Subject to 30D + 15B £ 660 (Mixing Depart ment constraint) 15B £ 270 (Filling Depart ment constraint) 10D + 15B £ 300 (Baking Depart ment constraint) 2. Solution Exhibit 1140 presents a graphical summary of the relat ionships. The optimal corner is the point (18, 8) i.e., 18 batches of Della’s Delights and 8 of Bonny’s Bourbons. SOLUTION EXHIBIT 1140 Graphic Solut ion to Find Optimal Mix, Della Simpson, Inc. Della Simpson Production Model 50 45 0, 44 Mixing Dept. Constraint 40 B (batches of Bonny's Bourbons) 35 Equal Contribution Margin Lines Optimal Corner (18,8) 30 25 20 3, 18 0, 18 Filling Dept. Constraint 15 10 Fea sible Region
5 Baking D...
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