Favata Corporation manufactures two products,AA and CC.The following information was available: $\begin{array}{lrr}&AA&CC\
\text { Selling price per unit } & \$ 37 & \$ 26 \
\text { Variable cost per unit } & 32 & 22 \
\text { Total fixed costs } & \$ 18,000
\end{array}$ If Favata Corporation could produce and sell either 10,000 units of AA or 5,000 units of CC at full capacity,it should produce and sell ________.
A) 10,000 units of AA and none of CC
B) 3,000 units of CC and 6,000 units of AA
C) 5,000 units of CC and none of AA
D) 4,000 units of AA and 5,000 units of CC

Question

Quizplus · Accepted Answer

The contribution margin per unit for AA is $5 ($37 - $32) and for CC is $4 ($26 - $22). Producing 10,000 units of AA yields a higher total contribution margin ($50,000) compared to 5,000 units of CC ($20,000). Therefore, producing 10,000 units of AA is more profitable.

Favata Corporation Manufactures Two Products,AA and CC If Favata Corporation Could Produce and Sell Either 10,000 Units