Edison Company produces two types of piano legs, plain and fancy, which have unit contribution margins of $8 and $12, respectively. Each piano leg must spend time on a special machine. The firm owns four machines that together provide 10,000 hours of machine time per year. The plain leg requires 0.25 hours of machine time, and the fancy leg requires 0.5 hours of machine time.
-Refer to the Figure.How many of each type of leg must be sold to optimize total contribution margin?
A)40,000 plain legs; 0 fancy legs
B)0 plain legs; 20,000 fancy legs
C)10,000 plain legs; 0 fancy legs
D)20,000 plain legs; 10,000 fancy legs

Question

Quizplus · Accepted Answer

To maximize the contribution margin, the company should prioritize the product with the higher contribution margin per machine hour. The plain leg has a contribution margin of $8 per 0.25 hours, which is $32 per hour, while the fancy leg has a contribution margin of $12 per 0.5 hours, which is $24 per hour. Therefore, producing only plain legs maximizes the contribution margin.

Edison Company Produces Two Types of Piano Legs, Plain and Fancy