Allocating scarce resourcesThe following information applies to the products of Zoghbi Com

Allocating scarce resources

The following information applies to the products of Zoghbi Company.

 

Product A

Product B

Selling price per unit

$26

$24

Variable cost per unit

22

18

 

Required

Identify the product that should be produced or sold under each of the following constraints. Consider each constraint separately.

a. One unit of Product A requires 2 hours of labor to produce, and one unit of Product B requires 4 hours of labor to produce. Due to labor constraints, demand is higher than the company’s capacity to make both products.

b. The products are sold to the public in retail stores. The company has limited floor space and cannot stock as many products as it would like. Display space is available for only one of the two products. Expected sales of Product A are 10,000 units and of Product B are 8,000 units.

c. The maximum number of machine hours available is 40,000. Product A uses 2 machine hours, and

Product B uses 5 machine hours. The company can sell all the products it produces.

 

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