Deng Corporation manufactures two styles of lamps - Bedford Lamp and Lowell Lamp.The following per unit data are available: $$\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sales price } & \$ 30 & \$ 35 \
\hline \text { Variable costs } & \$ 18 & \$ 23 \
\hline \text { Machine hours required for one lamp } & 2 & 4 \
\hline
\end{array}$$ Total fixed costs are $50,000.Machine hour capacity is 30,000 hours per year.Assuming that the company can sell as many products as it can make,which product mix would deliver the highest operating income?

Question

Deng Corporation manufactures two styles of lamps - Bedford Lamp and Lowell Lamp.The following per unit data are available: $$\begin{array} { | l | r | r | } 
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sales price } & \$ 30 & \$ 35 \
\hline \text { Variable costs } & \$ 18 & \$ 23 \
\hline \text { Machine hours required for one lamp } & 2 & 4 \
\hline
\end{array}$$ Total fixed costs are $50,000.Machine hour capacity is 30,000 hours per year.Assuming that the company can sell as many products as it can make,which product mix would deliver the highest operating income?

Quizplus · Accepted Answer

The contribution margin per machine hour is higher for Bedford Lamps ($6 per hour) compared to Lowell Lamps ($3 per hour). Therefore, producing only Bedford Lamps maximizes operating income.

Deng Corporation Manufactures Two Styles of Lamps - Bedford Lamp