A company sells two products with information as follows:
$\begin{array}{|l|l|l|}
\hline & \text { A } & \text { B } \
\hline \text { Price per unit } & \$ 12 & \$ 22 \
\hline \text { Variable cost per unit } & \$ 10 & \$ 10\
\hline
\end{array}$

Products are made by machine.4 units of Product A can be made with one machine hour and 2 units of Product B can be made with one machine hour.The company has a maximum of 5000 machine hours available per month.Assume there are no constraints on sales of either product and the company could choose any product mix they wish.What is the maximum amount of contribution margin that the company could earn in a month?

Question

A company sells two products with information as follows:
$\begin{array}{|l|l|l|} 
\hline &  \text { A } & \text { B } \
\hline \text { Price per unit } & \$ 12 & \$ 22 \
\hline \text { Variable cost per unit } & \$ 10 & \$ 10\
\hline 
\end{array}$

Products are made by machine.4 units of Product A can be made with one machine hour and 2 units of Product B can be made with one machine hour.The company has a maximum of 5000 machine hours available per month.Assume there are no constraints on sales of either product and the company could choose any product mix they wish.What is the maximum amount of contribution margin that the company could earn in a month?

Quizplus · Accepted Answer

The contribution margin per unit for Product A is $2 ($12 - $10) and for Product B is $12 ($22 - $10). Product B provides a higher contribution margin per machine hour ($24) compared to Product A ($8). With 5000 machine hours, the company should produce only Product B, resulting in a maximum contribution margin of $120,000 (5000 hours * 2 units/hour * $12).

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