Sand Corporation manufactures two styles of lamps: a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
$$\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sale price } & \$ 30 & \$ 40 \
\hline \text { Variable costs } & \$ 18 & \$ 24 \
\hline \text { Machine hours required for 1 lamp } & 2 & 4 \
\hline
\end{array}$$ Total fixed costs are $40,000. Machine hour capacity is 30,000 hours per year. The Lowell lamp has the highest contribution margin per unit, and also has the highest contribution margin per machine hour, so the company should focus sales on the Lowell lamp.

Question

Sand Corporation manufactures two styles of lamps: a Bedford Lamp and a Lowell Lamp. The following per unit data are available:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sale price } & \$ 30 & \$ 40 \
\hline \text { Variable costs } & \$ 18 & \$ 24 \
\hline \text { Machine hours required for 1 lamp } & 2 & 4 \
\hline
\end{array}$$ Total fixed costs are $40,000. Machine hour capacity is 30,000 hours per year. The Lowell lamp has the highest contribution margin per unit, and also has the highest contribution margin per machine hour, so the company should focus sales on the Lowell lamp.

Quizplus · Accepted Answer

The Lowell lamp has a higher contribution margin per unit, but not necessarily the highest contribution margin per machine hour. The Bedford lamp has a higher contribution margin per machine hour, making it more efficient given the machine hour constraint.

Sand Corporation Manufactures Two Styles of Lamps: a Bedford Lamp