Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows:
Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year.
Refer to the Decker Products information above. If demand were strong for both sets and the company could sell an unlimited number of either style, what is the maximum total contribution margin the company could have?

Question

Decker Products Decker Products manufactures standard and deluxe wooden swing sets. Selected data related to each product is as follows:
 Most of the manufacturing process for the sets is done on machines. There is a maximum of 10,000 machine hours available each year.
Refer to the Decker Products information above. If demand were strong for both sets and the company could sell an unlimited number of either style, what is the maximum total contribution margin the company could have?

Quizplus · Accepted Answer

Since there is no limit to the number of sets that can be sold and the company has a maximum of 10,000 machine hours available, the company should produce the product that generates the highest contribution margin per unit of machine hour. From the table above, we can see that the deluxe set generates a higher contribution margin per unit of machine hour compared to the standard set. Therefore, the company should only produce deluxe wooden swing sets to maximize their total contribution margin. The maximum total contribution margin is the contribution margin per unit multiplied by the number of units sold, which is (450 x 5,000) = $2,250,000. However, this exceeds the maximum machine hours available, so the actual maximum total contribution margin is (450 x 10,000) = $4,500,000. Since the company produces only deluxe sets, the correct answer is C, $1,125,000.

Decker Products Decker Products Manufactures Standard and Deluxe Wooden Swing