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Mega Chemical Company produces ZylexA and a related product called ZylexB. ZylexB, which sells for $15.00 per gallon, is made from a base of ZylexA plus additional ingredients. It takes 25 minutes to manufacture a gallon of ZylexA and an additional 10 minutes to manufacture a gallon of ZylexB. ZylexA sells for $9.00 per gallon. The cost per gallon of manufacturing ZylexA and the additional costs to convert it into ZylexB are:

ZylexA Additional Cost to Convert ZylexA
Into ZylexB
Material $2.00 $1.75
Labor $2.50 $0.50
Variable overhead $2.25 $1.10

Both products have been successful, and demand for both products is strong beyond the company's capacity. Since it takes additional time to manufacture ZylexB, the vice president of production is trying to determine whether ZylexB should be produced.

REQUIRED

Which product makes the largest contribution to company profit, given a capacity constraint measured in terms of production time?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M928595

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