Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 21

The product mix decision ABC Company produces Product X, Product Y, and Product Z. All three products require processing on specialized finishing machines. The capacity of these machines is 3,600 hours per month. ABC Company wishes to determine the product mix that should be achieved to meet the high demand for each product and provide the maximum profit. Following is information about each product:

	Product X	Product Y	Product Z
Selling price	$300	$240	$76
Variable costs	210	120	60
Machine time per unit	6 hours	4 hours	2 hours
Monthly demand (units)	360	240	600

Required:

Determine how the 3,600 hours of machine time should be allocated to the three products to provide the most profitable product mix.

Step 1 of 3

Product mix decision:

The product mix decision refers to the activity of making choice for appropriate amounts of each kind of product or service, so that resource constraints and given demand, should maximize total profits.