A company sells two products with information as follows: $$\begin{array} { | l | c | c | }
\hline & \mathrm { A } & \mathrm { B } \
\hline \text { Sales price per unit } & \$ 11.00 & \$ 26.00 \
\hline \text { Variable cost per unit } & \$ 10.00 & \$ 10.00 \
\hline
\end{array}$$ The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 4000 machine hours available per month.The company can sell up to 17,000 units of product A per month and up to 3000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Question

A company sells two products with information as follows: $$\begin{array} { | l | c | c | } 
\hline & \mathrm { A } & \mathrm { B } \
\hline \text { Sales price per unit } & \$ 11.00 & \$ 26.00 \
\hline \text { Variable cost per unit } & \$ 10.00 & \$ 10.00 \
\hline
\end{array}$$ The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 4000 machine hours available per month.The company can sell up to 17,000 units of product A per month and up to 3000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Quizplus · Accepted Answer

The contribution margin per unit for product A is $1 ($11 - $10), and for product B is $16 ($26 - $10). The contribution margin per machine hour for product A is $4 (4 units x $1), and for product B is $32 (2 units x $16). To maximize contribution margin, the company should prioritize product B. With 4000 machine hours, the company can produce 8000 units of product B (4000 hours x 2 units/hour), which is within the sales limit of 3000 units. The contribution margin from product B is $48,000 (3000 units x $16). The remaining 1000 machine hours can be used to produce 4000 units of product A (1000 hours x 4 units/hour), resulting in a contribution margin of $4,000 (4000 units x $1). The total maximum contribution margin is $48,000 + $4,000 = $58,000.

A Company Sells Two Products with Information as Follows The Products Are Machine Made