Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
$\begin{array}{|l|r|r|}
\hline&\text { Bedford Lamp } &\text { Lowell Lamp }\
\hline \text { Sale price } & \$ 25 & \$ 35 \
\hline \text { Variable costs } & \$ 17 & \$ 23 \
\hline \text { Machine hours required for 1 lamp } & 2 & 4 \
\hline
\end{array}$

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Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the company can sell as many products as it can make, which product mix would deliver the highest operating income?

Question

Clay Corporation manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
$\begin{array}{|l|r|r|}
\hline&\text { Bedford Lamp } &\text { Lowell Lamp }\
\hline \text { Sale price } & \$ 25 & \$ 35 \
\hline \text { Variable costs } & \$ 17 & \$ 23 \
\hline \text { Machine hours required for 1 lamp } & 2 & 4 \
\hline
\end{array}$

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Total fixed costs are $30,000. Machine hour capacity is 25,000 hours per year. Assuming that the company can sell as many products as it can make, which product mix would deliver the highest operating income?

Quizplus · Accepted Answer

C) 12,500 Bedford lamps, zero Lowell lamps is the correct choice because it maximizes the use of machine hours for the product with the highest contribution margin per machine hour, thus delivering the highest operating income.

Clay Corporation Manufactures Two Styles of Lamps-A Bedford Lamp and a Lowell