Sienna Company produces earrings,bracelets,and necklaces that are in high demand.Following is information for each of these products: Sienna has 2,000 machine hours available each month.Demand for each item exceeds Sienna's capacity to produce the item.In order to maximize the company's total contribution margin,in what sequence should Sienna fill orders for the three products?

Question

Sienna Company produces earrings,bracelets,and necklaces that are in high demand.Following is information for each of these products:  Sienna has 2,000 machine hours available each month.Demand for each item exceeds Sienna's capacity to produce the item.In order to maximize the company's total contribution margin,in what sequence should Sienna fill orders for the three products?

Quizplus · Accepted Answer

To maximize contribution margin, Sienna should produce items that have the highest contribution margin per machine hour. The contribution margin per machine hour for each product is as follows:

Earrings: $60 / 0.5 hour = $120 per machine hour
Bracelets: $40 / 0.4 hour = $100 per machine hour
Necklaces: $50 / 0.6 hour = $83.33 per machine hour

Therefore, Sienna should produce earrings first, followed by necklaces and then bracelets, in order to maximize total contribution margin.

Sienna Company Produces Earrings,bracelets,and Necklaces That Are in High Demand