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What is the maximum amount abc would be willing to pay

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Reference no: EM132540915

ABC company produces produces 3 products X, Y and Z. Unit data of 3 product are as follows:

                                                           X                Y                    Z

Selling price                             $90             $60             $70

Direct material                         $27             $18             $21

Labor cost                             $29                $35             $30

Estimated Demand                 300 units      275 units        295 units

All three products use the same direct materials, Metal. Metal costs $3 per pound and a maximum of 6,000 pounds is available each month. ABC must produce a minimum of 200 units of each product.

Question 1) How many units of product X, Y and Z should ABC produce?

Question 2) What is the maximum amount ABC would be willing to pay for another 500 pounds of metal? How many extra units they will be able to manufacture?

Question 3) Assume that 600 pounds of metal got spoiled due to an accident. Calculate the optimal product mix again in this situation.

Question 4) If the availability of materials worsen further, should ABC think of dropping the least profitable product? Why or why not? Explain briefly. Besides mention the qualitative factors that ABC can think about apart from quantitative factors while taking such decisions. Give your reasons.

Reference no: EM132540915

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