Oruro Chemical Corporation manufactures a variety of household cleaners, solvents, and beverages.Because of a recent shortage of mytron, a key ingredient needed for three of its products, the corporation has to decide what amount of each product would be most advantageous to produce.Information related to the three products that use mytron are shown below: Assume that Oruro only has 3, 000 ounces of mytron available next month.What is the maximum amount of contribution margin that Oruro can generate next month from the three products above given the shortage of mytron?

Question

Oruro Chemical Corporation manufactures a variety of household cleaners, solvents, and beverages.Because of a recent shortage of mytron, a key ingredient needed for three of its products, the corporation has to decide what amount of each product would be most advantageous to produce.Information related to the three products that use mytron are shown below:  Assume that Oruro only has 3, 000 ounces of mytron available next month.What is the maximum amount of contribution margin that Oruro can generate next month from the three products above given the shortage of mytron?

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the contribution margin per ounce of mytron for each product.

For product 1: 
Contribution margin per ounce of mytron = ($10 - $5) = $5

For product 2: 
Contribution margin per ounce of mytron = ($12 - $4) = $8

For product 3: 
Contribution margin per ounce of mytron = ($14 - $6) = $8

We can see that products 2 and 3 have the same contribution margin per ounce of mytron. Therefore, it is best to produce only products 2 and 3 to maximize the contribution margin with the limited mytron available.

The maximum contribution margin can be calculated as:

Maximum contribution margin = (2,000 ounces of mytron x $8 contribution margin per ounce of mytron) + (1,000 ounces of mytron x $5 contribution margin per ounce of mytron)

Maximum contribution margin = $16,000 + $5,000

Maximum contribution margin = $21,000

Therefore, the best choice is to produce only products 2 and 3, and the maximum contribution margin that can be generated is $21,000. Thus, the answer is C.

Oruro Chemical Corporation Manufactures a Variety of Household Cleaners, Solvents