Mallory Manufacturing produces thermal tents and sleeping bags.The company's products are in high demand due to the quality and durability of the products.Mallory estimates it could sell 600 tents per month and 600 sleeping bags per month.Following is information for each of these products: Mallory has 800 machine hours available each month.If Mallory allocates its production capacity between the tents and sleeping bags so that it maximizes the company's contribution margin, what will the contribution margin be?

Question

Mallory Manufacturing produces thermal tents and sleeping bags.The company's products are in high demand due to the quality and durability of the products.Mallory estimates it could sell 600 tents per month and 600 sleeping bags per month.Following is information for each of these products:  Mallory has 800 machine hours available each month.If Mallory allocates its production capacity between the tents and sleeping bags so that it maximizes the company's contribution margin, what will the contribution margin be?

Quizplus · Accepted Answer

To maximize the contribution margin, Mallory should produce the product that has the highest contribution margin per machine hour.

Contribution margin per unit of tent = $150 - $60 = $90
Contribution margin per unit of sleeping bag = $100 - $40 = $60

Contribution margin per machine hour for tent = $90/3 = $30
Contribution margin per machine hour for sleeping bag = $60/2 = $30

Since both products have the same contribution margin per machine hour, Mallory should produce the product with the highest demand. Therefore, Mallory should produce 600 tents and 200 sleeping bags.

Contribution margin = (600 x $90) + (200 x $60) = $54,000 + $12,000 = $66,000

Therefore, the contribution margin will be $13,765 (option B).

Mallory Manufacturing Produces Thermal Tents and Sleeping Bags