Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21, respectively.Each lamp must spend time on a special machine.The firm owns four machines that together provide 18,000 hours of machine time per year.The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours of machine time.
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What is the total contribution margin of the optimal mix of classic and fancy lamps?
A) $1,280,000
B) $950,000
C) $1,000,000
D) $1,170,000
E) $90,000

Question

Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21, respectively.Each lamp must spend time on a special machine.The firm owns four machines that together provide 18,000 hours of machine time per year.The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours of machine time. 
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What is the total contribution margin of the optimal mix of classic and fancy lamps?
A) $1,280,000
B) $950,000
C) $1,000,000
D) $1,170,000
E) $90,000

Quizplus · Accepted Answer

Since classic lamps have a contribution margin per hour of machine time of $65 (as opposed to fancy lamps' contribution margin per hour of $42), all machine time should go to the production of classic lamps.
 
The optimal mix is 90,000 classic lamps and zero fancy lamps.
Total contribution margin = 90,000 × $13 = $1,170,000
OR
18,000 available hours × $65.00 CM per classic lamp

Connolly Company Produces Two Types of Lamps, Classic and Fancy