Product A requires 5 machine hours per unit to be produced, Product B requires only 3 machine hours per unit, and the company's productive capacity is limited to 240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units of either product as it produces, the company should:
A) Produce only Product A.
B) Produce A and B in the ratio of 40% A and 60% B.
C) Produce A and B in the ratio of 62.5% A to 37.5% B.
D) Produce only Product B.
E) Produce equal amounts of A and B.

Question

Quizplus · Accepted Answer

Product B has a higher contribution margin per machine hour ($2.33) compared to Product A ($2), making it more profitable to produce only Product B given the machine hour constraint.

Product a Requires 5 Machine Hours Per Unit to Be