Mountaineer Products
Mountaineer Products manufactures two types of tents: single-wall and double-wall. Selected data related to each type of tent is as follows:
$\begin{array}{lrr}
&\text { Single-wall}&\text { Double-wall }\
\text { Sales price } & \$ 250 & \$ 375 \
\text { Direct materials } & 25 & 50 \
\text { Direct labour } & 20 & 40 \
\text { Variable overhead } & 10 & 15 \
\text { Machine hours } & 2 & 3
\end{array}$
Total fixed overhead is $150 000. Most of the manufacturing process is done on specialised machines. For the upcoming year, there is a maximum of 9000 machine hours available. Management believes there is sufficient demand for 3000 single-wall and 4000 double-wall tents each year.
-If the company maximises profits,what is the maximum contribution margin for the upcoming year?

Question

Quizplus · Accepted Answer

Maximising profits means that the company should aim for the highest possible contribution margin. We know that contribution margin is calculated as the difference between total revenue and total variable costs. Therefore, the maximum contribution margin would be achieved by maximizing revenue while minimizing variable costs. Looking at the given data, we can see that the only option that has the highest revenue ($1,140,000) and the lowest variable costs ($285,000) is option D, which gives a contribution margin of $855,000. Hence, the answer is D.

Mountaineer Products Mountaineer Products Manufactures Two Types of Tents: Single-Wall

Mountaineer Products
Mountaineer Products Manufactures Two Types of Tents: Single-Wall