Consider the following production and cost data for two products, X and Y: The company has 15,000 machine hours available each period, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?
A)$120,000
B)$125,000
C)$135,000
D)$150,000

Question

Consider the following production and cost data for two products, X and Y:  The company has 15,000 machine hours available each period, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?
A)$120,000 
B)$125,000 
C)$135,000 
D)$150,000

Quizplus · Accepted Answer

To maximize the total contribution margin, we need to allocate the machine hours to the product that generates the highest contribution margin per machine hour.

Product X generates a contribution margin of $50 per unit and requires 1 machine hour per unit, so its contribution margin per machine hour is $50.
Product Y generates a contribution margin of $30 per unit and requires 0.5 machine hours per unit, so its contribution margin per machine hour is $60 ($30 divided by 0.5).

Therefore, we should allocate all 15,000 machine hours to Product Y, which would generate a total contribution margin of $900,000 (15,000 machine hours multiplied by $60 contribution margin per machine hour).

Consider the Following Production and Cost Data for Two Products