Hari's Fish House can produce and sell only one of the following two products: The company has fryer capacity of 12,000 hours.How much will the contribution margin be if it produces only the most profitable product?

Question

Hari's Fish House can produce and sell only one of the following two products:  The company has fryer capacity of 12,000 hours.How much will the contribution margin be if it produces only the most profitable product?

Quizplus · Accepted Answer

The company should produce only the most profitable product, which is Product B. It has a contribution margin of $5 per pound compared to Product A's contribution margin of $3 per pound. With the limited fryer capacity of 12,000 hours, the company can produce a maximum of 4,800 pounds (12,000/2.5) of Product B. This would result in a contribution margin of $24,000 (4,800 x $5). Therefore, the best choice is to produce only Product B, with a contribution margin of $24,000.

Hari's Fish House Can Produce and Sell Only One of the Following