The following are production and cost data for two products, A and B, produced in batches of 100 units. $\begin{array}{lrr}&\text { Product A }&\text { Product B }\
\text { Contribution margin per batch } & \$ 450 & \$ 340 \
\text { Machine set-ups needed per batch } & 25 & 20
\end{array}$ The company can only perform 12,000 set-ups each period yet there is unlimited demand for each product. What is the incremental profit from producing Product A instead of Product B for the year?

Question

Quizplus · Accepted Answer

The incremental profit is calculated by comparing the contribution margin per setup for each product. Product A has a contribution margin of $450 per 25 setups, which is $18 per setup. Product B has a contribution margin of $340 per 20 setups, which is $17 per setup. The difference is $1 per setup. With 12,000 setups available, the incremental profit is $12,000.

The Following Are Production and Cost Data for Two Products