Elegance Bath Products, Inc.(EBP) makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time
- Assuming that specialized molding equipment time is the only constrained resource, and that EBP can sell as many tubs and sinks as it can produce, how many sinks should be sold?

Question

Elegance Bath Products, Inc.(EBP) makes a variety of ceramic sinks and tubs.EBP has just developed a line of sinks and tubs made from a mixture of glass and ceramic.The sinks sell for $150 each and have variable costs of $80.The tubs sell for $600 and have variable costs of $450.The glass and ceramic sinks and tubs require the use of specialized molding equipment.The specialized molding equipment has 4,050 hours of capacity per year.A sink uses an average of 2 hours of specialized molding equipment time; a tub uses an average of 5 hours of specialized molding equipment time  
-  Assuming that specialized molding equipment time is the only constrained resource, and that EBP can sell as many tubs and sinks as it can produce, how many sinks should be sold?

Quizplus · Accepted Answer

Contribution margin per hour of molding for tubs = $150 / 5 = $30
Contribution margin per hour of molding for sinks = $70 / 2 = $35
 
Because the contribution margin per hour for sinks ($35) is higher than that of tubs ($30), EBP would prefer to use the molding equipment as much as possible to make sinks.EBP has capacity for 2,025 sinks (4,050 hours / 2 hours).