Thomas Company has only 25,000 hours of machine time each month to manufacture its two products.Product X has a contribution margin of $50,and Product Y has a contribution margin of $64.Product X requires 5 hours of machine time,and Product Y requires 8 hours of machine time.If Thomas Company wants to dedicate 80 percent of its machine time to the product that will provide the most income,the company will have a total contribution margin of
A)$250,000.
B)$240,000.
C)$210,000.
D)$200,000.

Question

Quizplus · Accepted Answer

First, we need to find out how many machine hours can be dedicated to each product. 
80% of 25,000 hours = 20,000 hours 
Product X requires 5 hours per unit, so the maximum number of units that can be produced is 20,000/5 = 4,000 units. 
Product Y requires 8 hours per unit, so the maximum number of units that can be produced is 20,000/8 = 2,500 units.

Since Product Y has the higher contribution margin, we should produce as many units of Product Y as possible within the constraint of machine time. 
If we produce 2,500 units of Product Y, the total contribution margin will be:
2,500 units x $64 = $160,000

Therefore, the best choice is B) $240,000, which is not an answer choice. The closest answer choice is C) $210,000, which is 75% of the correct answer.

Thomas Company Has Only 25,000 Hours of Machine Time Each