Elegance Bath Products, Inc. (EBP) makes a variety of ceramic sinks and tubs. EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic. The sinks sell for $150 each and have variable costs of $80. The tubs sell for $600 and have variable cost of $450. The glass and ceramic sinks and tubs require the use of specialized moulding equipment. The specialized moulding equipment has 4,050 hours of capacity per year. A sink uses an average of two hours of specialized moulding equipment time; a tub uses an average of five hours of specialized moulding equipment time.
-Refer to the Figure.Assume that specialized moulding equipment time is the only constrained resource,and that EBP can sell as many tubs and sinks as it can produce.How many sinks should be sold?
A)0
B)810
C)2,025
D)2,050

Question

Quizplus · Accepted Answer

To maximize profit, EBP should produce and sell the products that generate the highest contribution margin per unit of constrained resource used.
Since the specialized moulding equipment is the only constrained resource, we need to calculate the contribution margin per hour of equipment time for both sinks and tubs:

- Contribution margin per hour of equipment time for a sink = ($150 - $80) / 2 hours = $35/hour
- Contribution margin per hour of equipment time for a tub = ($600 - $450) / 5 hours = $30/hour

Therefore, producing and selling sinks generates more profit per hour of equipment time than producing and selling tubs.
To determine how many sinks should be sold, we need to calculate how many can be produced with the available equipment time:

- 4,050 hours of equipment time / 2 hours per sink = 2,025 sinks

Since EBP can sell as many sinks as it can produce, it should sell all 2,025 sinks that can be produced with the available equipment time.