High Flying Copters manufactures two types of toy remote control helicopters, small and large. The following per unit data are available: Total fixed costs are $450,000 and the company has a machine hour capacity of 30,000 hours per year.
Which helicopter should they emphasis in production?
A)Small
B)Large
C)Equal amount of both
D)Cannot determine from information given.

Question

High Flying Copters manufactures two types of toy remote control helicopters, small and large. The following per unit data are available:  Total fixed costs are $450,000 and the company has a machine hour capacity of 30,000 hours per year.
Which helicopter should they emphasis in production?
A)Small 
B)Large 
C)Equal amount of both 
D)Cannot determine from information given.

Quizplus · Accepted Answer

Since the company has a machine hour capacity of 30,000 hours per year, we need to calculate the contribution margin per machine hour for each of the two products:

Contribution margin per machine hour for small helicopter = ($40 - $20) / 0.1 = $200
Contribution margin per machine hour for large helicopter = ($60 - $30) / 0.2 = $150

Therefore, producing and selling small helicopters will generate more contribution per machine hour than large helicopters. Hence, the company should emphasize the production of small helicopters.

High Flying Copters Manufactures Two Types of Toy Remote Control