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Scarce Resource Usage
E 10. EZ, Inc. manufactures two products that require both machine processing and labor operations. Although there is unlimited demand for both products, EZ could devote all its capacities to a single product. Unit prices, cost data, and processing requirements follow.
Product E
Product Z
Unit selling price
$70
$230
Unit variable costs
$30
$90
Machine hours per unit
0.4
1.4
Labor hours per unit
2.0
6.0
Next year, the company will be limited to 160,000 machine hours and 120,000 labor hours. Fixed costs for the year are $1,500,000.
1. Compute the most profitable combination of products to be produced next year.
2. Prepare an income statement using the contribution margin format for the product volume computed in 1.
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