Dustin Co. makes three products, A, B and C. They have a constrained resource - machine hours. There are only 17,398 machine hours available a month. The three products have the following data: A B C Selling Price per unit 6.00 16.00 11.00 Variable Cost per unit 2.00 4.00 6.00 Machine hours required 2 4 5 Demand for product in units 1,009 3,847 1,037 How much of product B should be produced?

Total products produced by B = 3847

Explanation:

Given - Dustin Co. makes three products, A, B and C. They have a constrained resource - machine hours. There are only 17,398 machine hours available a month.

The three products have the following data:

                                                    A                   B                        C

Selling Price per unit                6.00             16.00                 11.00

Variable Cost per unit              2.00              4.00                  6.00

Machine hours required             2                    4                        5

Demand for product in units    1,009             3,847                 1,037

To find - How much of product B should be produced?

Solution -

Products                                        A                            B                     C

Selling Price per unit                     6                            16                    11

Variable cost per unit                    2                             4                     6

Contribution (Selling - Variable)    4                             12                   5

Machine hours required                2                              4                    5

Contribution per hr                         2                             3                     1

(Conribution / Machine hour)

Rank                                                II                              I                      III

Demand                                          1009                       3847               1037

Now,

Hours allocated to B -

No. of hours available = 3847 × 4 = 15,388

Available hours = 17,398

Now,

Extra hours = 17,398 - 15,388 = 2,010 (Allocated to A)

∴ The production of product B should be full capacity

i.e. Total products produced by B = 3847

total spending needs to increase by $0.4 billion

Explanation:

Calculation to determine how much total spending needs to increase or decrease

Using this formula

Increase or Decrease in total spending=Equilibrium income/Spending multiplier

Let plug in the formula

Increase or Decrease in total spending=$2 billion/5

Increase or Decrease in total spending=$0.4 billion

Therefore If the spending multiplier equals 5 and equilibrium income is $2 billion below potential GDP, then TOTAL SPENDING NEEDS TO INCREASE BY $0.4 BILLION to reach the potential real GDP level.