Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.
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Now suppose that Santorino Company can sell only 5,500 units of each model.How many units of Model K-3 should be produced?
A) 5,500
B) 312
C) 1,250
D) 2,750
E) 5,000

Question

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.  
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Now suppose that Santorino Company can sell only 5,500 units of each model.How many units of Model K-3 should be produced?
A) 5,500
B) 312
C) 1,250
D) 2,750
E) 5,000

Quizplus · Accepted Answer

Model K-3 requires 15 / 60 or 0.25 of a machine hour.
Model P-4 requires 30 / 60 or 0.50 of a machine hour.
 
 11ea8a4c_48b8_59df_a0e6_b320f697a1f8_TB5550_00 Since P-4 has the higher contribution margin per hour of machine time, produce 5,500 units of P-4, which will take 2,750 hours of machine time.
 
Remaining hours of machine time = 4,000 - 2,750 = 1,250 hours
Model K-3 units = 1,250 / 0.25 = 5,000 units

Santorino Company Produces Two Models of a Component, Model K-3