Spinning Wool currently produces and sells three different t…
Spinning Wool currently produces and sells three different types of yarn. Total demand for the yarn exceeds the firm’s capacity. The constraint on production is the time available on a special machine that cleans the wool used for the yarn. Data on the products and time required on the special machine are summarized in the following chart. (10 pts. total) Type of Yarn Fine Medium Coarse Selling price per lot $24 $30 $36 Variable manufacturing cost per lot $12 $18 $11 Fixed cost per lot $5 $8 $10 Machine hours needed per lot 0.2 0.25 0.5 Maximum demand (in lots) per period 4,000 3,750 5,000 Materials lbs. used per lot 2 3 1.5 The firm has only 2,500 hours of time available on the special machine per period. They have no constraint on materials. Fixed costs are $100,000 per period, which will not change if the product mix changes or if any products are dropped. How many machine hours should be devoted to the manufacture of each product? (6 pts.) What is the maximum additional amount that Spinning Wool would be willing to spend per machine hour to increase the machine’s capacity? (4 pts.)