Manico Company produces three products-X,Y,& Z-with the following characteristics: The company has only 2,000 machine-hours available each month.If demand exceeds the company's capacity,in what sequence should orders be filled if the company wants to maximize its total contribution margin?

Question

Manico Company produces three products-X,Y,& Z-with the following characteristics:  The company has only 2,000 machine-hours available each month.If demand exceeds the company's capacity,in what sequence should orders be filled if the company wants to maximize its total contribution margin?

Quizplus · Accepted Answer

To maximize the total contribution margin, the company should produce the products that have the highest contribution margin per machine-hour. Calculating the contribution margin per machine-hour for each product:

- Product X: $30 / 0.5 machine-hours = $60 per machine-hour
- Product Y: $40 / 1 machine-hour = $40 per machine-hour
- Product Z: $20 / 0.25 machine-hours = $80 per machine-hour

Therefore, the company should prioritize orders for Z first, followed by X, and then Y. Option B is the only one that follows this sequence. Option A and C prioritize Y over X even though X has a higher contribution margin per machine-hour. Option D ignores the fact that X and Y can generate additional contribution margin even with limited machine-hours.

Manico Company Produces Three Products-X,Y,& Z-With the Following Characteristics