Lam Company manufactures a line of carpeting that includes a commercial carpet and a residential carpet. Two grades of fibre, heavy duty and regular, are used in manufacturing both types of carpeting. The mix of the two grades of fibre differs in each type of carpeting, with the commercial grade using a greater amount of heavy duty fibre.
Lam will introduce a new line of carpeting in two months to replace the current line. The present fibre in stock will not be used in the new line. Management wants to exhaust the present stock of regular and heavy duty fibre during the last month of production.
Data regarding the current line of commercial and residential carpeting are:
Commercial
Residential
Selling price per roll
$1,000
$800
Production specifications per roll of carpet:
Heavy duty fibre
80 kg
40 kg
Regular fibre
20 kg
40 kg
Direct labour hours
5 hours
5 hours
Standard cost per roll of carpet:
Heavy duty fibre ($3 per kg)
$240
$120
Regular fibre ($2 per lb.)
40
80
Direct labour ($30 per DLH)
150
150
Variable manufacturing overhead
(60% of direct labour cost)
90
90
Fixed manufacturing overhead
(120% of direct labour cost)
180
180
Total standard cost per roll
$700
$620
Lam has 42,000 kg of heavy duty fibre and 20,000 kg of regular fibre in stock. There are a maximum of 4,000 direct labour hours available during the month. The labour 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 must manufacture during the last month of production to maximize overall profitability.
