00 min 50 35 15 2200 30 050 min machine a1 is the

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Unformatted text preview: 0% of its capacity. There is excess capacity on all other machines. Machine A1 has a capacity of 2,400 minutes per week. Should Ensign use A1 to produce Product 1 or 2 ? Maximize Profits with Limited Resources C_________ / B__________: restricts the company’s ability to satisfy all of customers’ demands Product 1 Contribution margin per unit Time required to produce one unit Contribution margin per minute $ ÷ 2 24 $ 15 1.00 m in. ÷ 0.50 m in. $ 24 $ 30 Maximize Profits with Limited Resources – Product Mix Decision Alloting Our Constrained Resource (Machine A1) Weekly demand for Product 2 Time required per unit Total time required to make Product 2 Total time available Time used to make Product 2 Time available for Product 1 Time required per unit Production of Product 1 × 2,200 units 0.50 m in. 1,100 m in. ÷ 2,400 1,100 1,300 1.00 1,300 m in. m in. m in. m in. units Maximize Profits with Limited Resources – Product Mix Decision Production and sales (units) Contribution margin per unit Total contribution margin Product 1 1,300 $ 24 $ 31,200 Product 2 2,200 $ 15 $ 33,000 The total contribution margin for Ensign is $64,200. Managing Constraints Outsource / Sub-contracting Re-allocate workers from non-bottleneck facilities Retrain employees Work overtime Additional investments Reduce non-valueadded activities Reduce non-valueadded activities Pricing Decisions – Major Influences Customer demand Political, legal, and image issues Pricing Decisions Competitors Costs 1-34 Profit-Maximizing Model – Determining Price and Quantity Dollars per unit Profit is maximized where marginal cost equals marginal revenue, resulting in price p* and quantity q*. p* Demand Marginal cost q* Marginal Quantity made revenue and sold 1-35 per month Profit-Maximizing Model – Determ...
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This document was uploaded on 03/06/2014.

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