The Clapton Company manufactures two products: Alpha and Beta.The costs and revenues are as follows: Total demand for Alpha is 10,000 units and for Beta is 6,000 units.Machine time is a scarce resource.During the year,50,000 machine hours are available.Alpha requires 4 machine hours per unit,while Beta requires 2.5 machine hours per unit.
What is the maximum contribution margin Clapton can achieve during a year?
A)$444,250
B)$1,014,000
C)$488,000
D)$855,500

Question

Quizplus · Accepted Answer

The maximum contribution margin is achieved by producing the product with the highest contribution margin per unit. In this case, Alpha has a contribution margin per unit of $44.43, while Beta has a contribution margin per unit of $35.50. Therefore, the maximum contribution margin is achieved by producing as many units of Alpha as possible, up to the point where the total demand for Alpha is met. This means that Clapton should produce 10,000 units of Alpha and 0 units of Beta. The total contribution margin for this production plan is $444,250.

The Clapton Company Manufactures Two Products: Alpha and Beta