Pasture Corporation processes all of its products through a lathe machine.The lathe is only available for 60 hours per week and is the constraint for all of the products.Data regarding Pasture Corporation's three products follows: $$\begin{array} { | l | c | c | c | }
\hline & \text { Product D } & \text { Product E } & \text { Product F } \
\hline \text { Selling price per unit } & \$ 80.00 & \$ 60.00 & \$ 100.00 \
\hline \text { Variable cost per unit } & \$ 45.00 & \$ 35.00 & \$ 80.00 \
\hline \begin{array} { c }
\text { Minutes of lathe time } \
\text { required per unit }
\end{array} & 10 & 20 & 5 \
\hline
\end{array}$$ In what order should Pasture Corporation emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.)

Question

Pasture Corporation processes all of its products through a lathe machine.The lathe is only available for 60 hours per week and is the constraint for all of the products.Data regarding Pasture Corporation's three products follows: $$\begin{array} { | l | c | c | c | } 
\hline & \text { Product D } & \text { Product E } & \text { Product F } \
\hline \text { Selling price per unit } & \$ 80.00 & \$ 60.00 & \$ 100.00 \
\hline \text { Variable cost per unit } & \$ 45.00 & \$ 35.00 & \$ 80.00 \
\hline \begin{array} { c } 
\text { Minutes of lathe time } \
\text { required per unit }
\end{array} & 10 & 20 & 5 \
\hline
\end{array}$$ In what order should Pasture Corporation emphasize its products to maximize its contribution margin? (Rank the products in order from most profitable to least profitable.)

Quizplus · Accepted Answer

To maximize contribution margin, calculate the contribution margin per minute of lathe time for each product. Product F has the highest contribution margin per minute, followed by Product D, and then Product E.

Pasture Corporation Processes All of Its Products Through a Lathe