Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.
-
Now suppose that Santorino Company can sell only 5,500 units of each model.How many units of Model P-4 should be produced?
A) 5,500
B) 5,000
C) 1,250
D) 2,750
E) 1,375

Question

Santorino Company produces two models of a component, Model K-3 and Model P-4.The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14.Each model must spend time on a special machine.The firm owns two machines that together provide 4,000 hours of machine time per year.Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.  
- 
Now suppose that Santorino Company can sell only 5,500 units of each model.How many units of Model P-4 should be produced?
A) 5,500
B) 5,000
C) 1,250
D) 2,750
E) 1,375

Quizplus · Accepted Answer

Model K-3 requires 15 / 60 or 0.25 machine hours.
Model P-4 requires 30 / 60 or 0.50 machine hours.
 
 11ea8a4c_48b8_a800_a0e6_ad7339c34d50_TB5550_00 Since P-4 has the higher contribution margin per hour of machine time, produce 5,500 units of P-4.(Any remaining machine time can be used to produce Model K-3.)

Santorino Company Produces Two Models of a Component, Model K-3