Alamo Corporation processes all of its products through a lathe machine. The lathe is only available for 60 hours per week and is the constraint for all of the products. Data regarding Alamo Corporation's three products follows: In what order should Alamo Corporation emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.)

Question

Alamo Corporation processes all of its products through a lathe machine. The lathe is only available for 60 hours per week and is the constraint for all of the products. Data regarding Alamo Corporation's three products follows:  In what order should Alamo Corporation emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.)

Quizplus · Accepted Answer

To maximize contribution margin, Alamo Corporation should prioritize products with the highest contribution margin per unit of time taken on the lathe machine. Product A has the highest contribution margin per unit of time at $200/hour, followed by Product B at $150/hour, and Product C at $120/hour. Therefore, Alamo Corporation should prioritize processing Product A first, followed by Product B, and then Product C. This prioritization will help the company generate the most revenue and profit within the time constraints imposed by the lathe machine.

Alamo Corporation Processes All of Its Products Through a Lathe