Zurek Inc has 5,400 machine hours available each month.The following information on the company's three products is available: The market demand is limited to 2,000 units of each of the three products.What is the maximum possible contribution margin that Zurek could make in any month?
A)$81,000
B)$46,500
C)$43,000
D)$51,000

Question

Quizplus · Accepted Answer

To maximize contribution margin, we need to produce and sell the products that have the highest contribution margin per machine hour.

Product 1: Contribution margin per unit = $20, Machine hours per unit = 0.5, Contribution margin per machine hour = $40 
Product 2: Contribution margin per unit = $15, Machine hours per unit = 0.3, Contribution margin per machine hour = $50 
Product 3: Contribution margin per unit = $10, Machine hours per unit = 0.2, Contribution margin per machine hour = $50

Based on the above calculations, we should produce Product 2 and Product 3 as they have the highest contribution margin per machine hour.

Maximum number of units of each product that can be produced and sold with 5,400 machine hours:

Product 2: (5,400 machine hours / 0.3 machine hours per unit) = 18,000 units 
Product 3: (5,400 machine hours / 0.2 machine hours per unit) = 27,000 units

Total contribution margin = (18,000 units of Product 2 x $15 contribution margin per unit) + (27,000 units of Product 3 x $10 contribution margin per unit) = $46,500

Zurek Inc Has 5,400 Machine Hours Available Each Month