Meier Corporation produces two products, Pots and Pans.The following information is available for these two products: $\begin{array}{lrr}&\text { Pots }&\text { Pans }\
\text { Selling price per unit } & \$ 21.00 & \$ 15.00 \
\text { Variable cost per unit } & 18.00 & 9.00 \
& & \
\text { Total fixed costs } & \$ 15,000 & \
\text { Total production capacity } &{10,000} & \text { units }
\end{array}$ If at least 10,000 units of either Pots and/or Pans can be sold, it is best to produce _____
A)Pans only
B)Pots only
C)2,500 units of Pots and 7,500 units of Pans
D)5,000 units of Pots and 5,000 units of Pans

Question

Quizplus · Accepted Answer

To determine the best production strategy, we calculate the contribution margin per unit for both products. The contribution margin is the selling price per unit minus the variable cost per unit. For Pots, it's $21.00 - $18.00 = $3.00 per unit. For Pans, it's $15.00 - $9.00 = $6.00 per unit. Since Pans have a higher contribution margin per unit, producing Pans only will maximize the total contribution margin and cover the fixed costs more efficiently.

Meier Corporation Produces Two Products, Pots and Pans If at Least 10,000 Units of Either Pots And/or Pans