MA81 Problem: CM Analysis and Scarce Resources - Lam Company

MA81 Problem: CM Analysis and Scarce Resources - Lam Company

 Lam Company manufactures a line of carpeting that includes a commercial carpet and a residential carpet.Two grades of fiber-heavy-duty and regular-are used in manufacturing both types of carpeting. The mixof the two grades of fiber differs in each type of carpeting, with the commercial grade using a greater amount of heavy duty fiber.Lam will introduce a new line of carpeting in two months to replace the current line. The present fiber instock will not be used in the new line. Management wants to exhaust the present stock of regular andheavy-duty fiber during the last month of production.Data regarding the current line of commercial and residential carpeting are as follows:

Commercial Residential 

Selling price per roll $1,000 $800Production specifications per roll of carpet:Heavy-duty fiber 80 kg. 40 kg.Regular fiber 20 kg. 40 kg.Direct labour-hours 5 hours 5 hoursStandard cost per roll of carpet:Heavy-duty fiber ($3 per kg.) $240 $120Regular fiber ($2 per lb.) 40 80Direct labor ($30 per DLH) 150 150Variable manufacturing overhead(60% of direct labour cost) 90 90Fixed manufacturing overhead(120% of direct labour cost) 180 180Total standard cost per roll $700 $620 Lam has 42,000 kg. of heavy-duty fiber and 20,000 kg. of regular fiber in stock. There are a maximum of 4,000 direct labour-hours available during the month. The labor force can work on either type of carpeting.Sufficient demand exists to sell 250 rolls of Commercial carpets and 500 rolls of Residential Carpets.

 Required – 

Calculate the number of rolls of commercial carpet and residential carpet Lam Company mustmanufacture during the last month of production to maximize overall profitability