Dills Corporation has provided the following data concerning its two products--O24 and C50: $\begin{array}{lrr}
&\text { O24 }&\text {C50 }\
\text { Monthly unit demand ........ } & 1,500 & 7,300 \
\text { Selling price................ } & \$ 425.00 & \$ 130.00 \
\text { Unit variable cost ........... } & \$ 297.50 & \$ 78.00
\end{array}$
The total amount of the constrained resource available each month is 49,250 grams.Each unit of product O24 requires 17 grams of the constrained resource and each unit of product C50 requires 5 grams.What is the maximum contribution margin the company can earn per month?

Question

Dills Corporation has provided the following data concerning its two products--O24 and C50: $\begin{array}{lrr}
&\text { O24 }&\text {C50 }\
\text { Monthly unit demand ........ } & 1,500 & 7,300 \
\text { Selling price................ } & \$ 425.00 & \$ 130.00 \
\text { Unit variable cost ........... } & \$ 297.50 & \$ 78.00
\end{array}$
 The total amount of the constrained resource available each month is 49,250 grams.Each unit of product O24 requires 17 grams of the constrained resource and each unit of product C50 requires 5 grams.What is the maximum contribution margin the company can earn per month?

Quizplus · Accepted Answer

To find the maximum contribution margin, calculate the contribution margin per unit for each product and then determine the contribution margin per gram of the constrained resource. Prioritize the product with the higher contribution margin per gram. O24 has a contribution margin of $127.50 per unit (425 - 297.50) and C50 has $52 per unit (130 - 78). Per gram, O24 has $7.50 (127.50/17) and C50 has $10.40 (52/5). Prioritize C50, using 36,500 grams (7,300 units), then use remaining 12,750 grams for O24 (750 units). Total contribution margin is $379,600 (C50) + $95,625 (O24) = $475,225.

Dills Corporation Has Provided the Following Data Concerning Its Two