Misbah Corporation manufactures two styles of lampslong dasha Bedford Lamp and a Lowell Lamp. The following per unit data are available: Bedford Lamp Lowell Lamp Sales price $ 30 $ 35 Variable costs $ 18 $ 23 Machine hours required for one lamp 2 4 Total fixed costs are $ 50 comma 000. Marketing data indicate that the company can sell up to 8 comma 000 units of the Bedford Lamp and up to 4 comma 000 units of the Lowell Lamp. Machine hour capacity is 26 comma 000 hours per year. Which product mix will deliver the optimum operating income?

D. 8.000 Bedford Lamps and 2.500 Lowell Lamps

Explanation:

The computation of the optimum operating income is shown below:

Particulars          Bedford Lamp         Lowell Lamp

Sales price          $30                         $35

Less: Variable costs$18                         $ 23

Contribution                 $12                         $12

Machine hours           2                          4

Contribution per machine hour63

(Bedford = 12 ÷ 2, Lowell = 12 ÷ 4)  

As we can see that the contribution margin per hour of Bedford Lamp is more than that of Lowell lamp so  the production of Bedford Lamp should produced first and then Lowell Lamp.

And, required hours to make 8,000 units of bedford lamp is

= 8,000 × 2

= 16.000 hours

Now Balance Hours is

= 260,00 - 16,000

= 10,000 hours  

Lowell lamp that can be made from 10000 hours is

= 10,000 ÷ 4

= 2,500 Lowel Lamps

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