Range Rider Industries manufactures chairs and tables that are in high demand by local office furniture stores.Following is information for each of these products: Range Rider has 900 machine hours available each month.The demand for chairs is 560 units per month and the demand for tables is 340 units per month.In order to maximize the company's total contribution margin, how should Range Rider allocate its production capacity between the chairs and tables?
A)562 tables and 0 chairs
B)340 tables and 222 chairs
C)340 tables and 560 chairs
D)562 chairs and 0 tables

Question

Range Rider Industries manufactures chairs and tables that are in high demand by local office furniture stores.Following is information for each of these products:  Range Rider has 900 machine hours available each month.The demand for chairs is 560 units per month and the demand for tables is 340 units per month.In order to maximize the company's total contribution margin, how should Range Rider allocate its production capacity between the chairs and tables?
A)562 tables and 0 chairs 
B)340 tables and 222 chairs 
C)340 tables and 560 chairs 
D)562 chairs and 0 tables

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per unit for each product.

Chairs: 
Selling price per unit = $150 
Variable cost per unit = $90 
Contribution margin per unit = $60

Tables: 
Selling price per unit = $200 
Variable cost per unit = $120 
Contribution margin per unit = $80

Next, we need to determine how many units of each product can be produced within the 900 machine hours available. To do this, we need to calculate the machine hours required to produce each unit of each product.

Chairs: 
Machine hours per unit = 0.6

Tables: 
Machine hours per unit = 0.8

To maximize the contribution margin, we need to produce the product with the highest contribution margin per machine hour.

Chairs: 
Contribution margin per machine hour = $60 / 0.6 = $100

Tables: 
Contribution margin per machine hour = $80 / 0.8 = $100

Both products have the same contribution margin per machine hour, so we need to allocate production capacity based on demand.

If we produce 340 tables, we will use 272 machine hours (340 x 0.8) and have 628 machine hours remaining. We can then produce 222 chairs (628 / 0.6).

Therefore, the best choice is B: 340 tables and 222 chairs.

Range Rider Industries Manufactures Chairs and Tables That Are in High