Joan Partridge, the owner manager of JP Enterprises (JPE), is deciding on the best allocation of her managerial and technical employees to two types of consulting projects. Both projects involve providing initial guidance to clients about how to select consultants to actually undertake the projects.
Activity costing (AC) guidance projects require two manager hours and two technician hours and generate revenue of $600. Incentive design (ID) guidance projects require one manager hour and four technician hours and generate revenue of $500.
All employees are hourly paid and the rate per hour for managers and technicians is $100 and $50, respectively. JPE has 40 manager hours and 100 technician hours available.
Company overhead, which is fixed, is charged to projects at the rate of $25 per labour hour. The following is the financial summary for the two types of projects:
AC Jobs
ID Jobs
Revenue
$600
$500
Labour costs
Manager (2 hours @ $100)
200
Manager (1 hour @ $100)
100
Technician (2 hours @ $50)
100
Technician (4 hours @ $50)
200
Overhead allocation
4 hours @ $25
100
5 hours @ $25
125
Profit per job
$200
$75
Required:
a. If JP wishes to maximum total short-term contribution, what is the best product mix?
b. If the number of AC jobs is unconstrained but no more than 10 ID jobs can be undertaken how, if at all, will this change your response from part a)?
