Clay Company manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available:
$$\begin{array} { | l | l | l | }
\hline& \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sale price } & \$ 30 & \$ 35 \
\hline \text { Variable costs } & \$ 18 & \$ 23 \
\hline \text { Machine hours required for 1 lamp } & 2 & 4 \
\hline
\end{array}$$

Total fixed costs are $40,000.Machine hour capacity is 20,000 hours per year.Assuming that the company can sell as many products as it can make,which product mix would deliver the highest operating profit?

Question

Clay Company manufactures two styles of lamps-a Bedford Lamp and a Lowell Lamp.The following per unit data are available:
$$\begin{array} { | l | l | l | } 
\hline& \text { Bedford Lamp } & \text { Lowell Lamp } \
\hline \text { Sale price } & \$ 30 & \$ 35 \
\hline \text { Variable costs } & \$ 18 & \$ 23 \
\hline \text { Machine hours required for 1 lamp } & 2 & 4 \
\hline
\end{array}$$

Total fixed costs are $40,000.Machine hour capacity is 20,000 hours per year.Assuming that the company can sell as many products as it can make,which product mix would deliver the highest operating profit?

Quizplus · Accepted Answer

The contribution margin per machine hour is higher for Bedford Lamps ($6 per hour) compared to Lowell Lamps ($3 per hour). Producing 10,000 Bedford Lamps maximizes the use of machine hours and contribution margin, leading to the highest operating profit.

Clay Company Manufactures Two Styles of Lamps-A Bedford Lamp and a Lowell