Brown Company makes four products in a single facility. These products have the following unit product costs:

Additional data concerning these products are listed below.

The grinding machines are potentially a constraint in the production facility. A total of 10,500 minutes are available per month on these machines.
Direct labour is a variable cost in this company.

-Given the current capacity what is the greatest total contribution margin Brown Company can earn?

Question

Brown Company makes four products in a single facility. These products have the following unit product costs:

Additional data concerning these products are listed below.

The grinding machines are potentially a constraint in the production facility. A total of 10,500 minutes are available per month on these machines.
Direct labour is a variable cost in this company.

-Given the current capacity what is the greatest total contribution margin Brown Company can earn?

Quizplus · Accepted Answer

To determine the greatest total contribution margin, we need to maximize the contribution margin per minute of the grinding machines.

Product A: contribution margin per minute = $20/minute
Product B: contribution margin per minute = $10/minute
Product C: contribution margin per minute = $30/minute
Product D: contribution margin per minute = $15/minute

Using all 10,500 minutes on Product C gives the highest contribution margin:
10,500 minutes x $30/minute = $315,000 contribution margin

Therefore, the best choice is to produce only Product C.

Brown Company Makes Four Products in a Single Facility