A company sells two products with information as follows:
$$\begin{array} { | l | r | r | }
\hline & \mathrm { A } & \mathbf { B } \
\hline \text { Price per unit } & \$ 12.00 & \$ 28.00 \
\hline \text { Variable cost per unit } & \$ 10.00 & \$ 10.00 \
\hline
\end{array}$$
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 4000 machine hours available per month.The company can sell up to 7000 units of Product A per month and up to 3000 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:
$$\begin{array} { | l | r | r | } 
\hline & \mathrm { A } & \mathbf { B } \
\hline \text { Price per unit } & \$ 12.00 & \$ 28.00 \
\hline \text { Variable cost per unit } & \$ 10.00 & \$ 10.00 \
\hline
\end{array}$$
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 4000 machine hours available per month.The company can sell up to 7000 units of Product A per month and up to 3000 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 $2 ($12 - $10), and for Product B is $18 ($28 - $10). The company should prioritize Product B due to its higher contribution margin per unit. With 4000 machine hours, they can produce 8000 units of Product B (4000 hours * 2 units/hour), but they can only sell 3000 units. So, they produce and sell 3000 units of Product B, contributing $54,000 (3000 units * $18). The remaining 1000 machine hours can produce 4000 units of Product A (1000 hours * 4 units/hour), contributing $8,000 (4000 units * $2). Total contribution margin is $54,000 + $8,000 = $62,000.

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