The Southeast Company makes three products in one manufacturing facility. Data regarding these products are as follows: If there are only 2,000 machine hours available, which is the MOST profitable product?
A) Product A
B) Product B
C) Product C
D) Cannot be determined

Question

The Southeast Company makes three products in one manufacturing facility. Data regarding these products are as follows:  If there are only 2,000 machine hours available, which is the MOST profitable product?
A) Product A 
B) Product B 
C) Product C 
D) Cannot be determined

Quizplus · Accepted Answer

To determine the most profitable product, we need to calculate the contribution margin per machine hour for each product.

Product A: 
Contribution margin per unit = $50 - $28 - $12 = $10 
Machine hours required per unit = 0.5 
Contribution margin per machine hour = $10 ÷ 0.5 = $20

Product B: 
Contribution margin per unit = $60 - $35 - $10 = $15 
Machine hours required per unit = 0.75 
Contribution margin per machine hour = $15 ÷ 0.75 = $20

Product C: 
Contribution margin per unit = $70 - $42 - $14 = $14 
Machine hours required per unit = 0.6 
Contribution margin per machine hour = $14 ÷ 0.6 = $23.33

Based on the calculation above, Product C has the highest contribution margin per machine hour at $23.33, making it the most profitable product. Therefore, the answer is C.

The Southeast Company Makes Three Products in One Manufacturing Facility