A company sells two products with information as follows: $$\begin{array} { | l | r | r | }
\hline & \mathrm { A } & \mathrm { B } \
\hline \text { Sales price per unit } & \$ 11.00 & \$ 22.00 \
\hline \text { Variable cost per unit } & \$ 10.00 & \$ 12.00 \
\hline
\end{array}$$ The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 6,000 machine hours available per month.The company can sell up to 7,000 units of product A per month and up to 3,000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Question

A company sells two products with information as follows: $$\begin{array} { | l | r | r | } 
\hline & \mathrm { A } & \mathrm { B } \
\hline \text { Sales price per unit } & \$ 11.00 & \$ 22.00 \
\hline \text { Variable cost per unit } & \$ 10.00 & \$ 12.00 \
\hline
\end{array}$$ The products are machine made.Four units of product A can be made with one machine hour,and two units of product B can be made with one machine hour.The company has a maximum of 6,000 machine hours available per month.The company can sell up to 7,000 units of product A per month and up to 3,000 units of product B for the month.What is the maximum amount of contribution margin that the company could earn in a month given the stated constraints?

Quizplus · Accepted Answer

The contribution margin per unit for product A is $1 ($11 - $10), and for product B is $10 ($22 - $12). Maximizing contribution margin involves using machine hours efficiently. Product B provides a higher contribution margin per machine hour ($20) compared to product A ($4). With 6,000 machine hours, the company should produce the maximum possible units of product B (3,000 units using 1,500 hours), and then use the remaining 4,500 hours to produce product A (18,000 units). The total contribution margin is $48,000.

A Company Sells Two Products with Information as Follows The Products Are Machine Made