Spring,Inc.manufactures two products.It currently has 1,000 hours of direct labor and 2,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product: How much of each product should Spring manufacture per month?
A)1,000 units of A and 2,000 units of B
B)1,000 units of A and 0 units of B
C)0 units of A and 2,000 units of B
D)1,000 units of A and 250 units of B

Question

Spring,Inc.manufactures two products.It currently has 1,000 hours of direct labor and 2,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product:  How much of each product should Spring manufacture per month?
A)1,000 units of A and 2,000 units of B 
B)1,000 units of A and 0 units of B 
C)0 units of A and 2,000 units of B 
D)1,000 units of A and 250 units of B

Quizplus · Accepted Answer

To determine which products to manufacture, we need to calculate the contribution margin per unit of each product and also consider the labor and machine time requirements per unit.

Product A:
Contribution Margin = $70 - $35 - $10 = $25
Labor Hours Required = 2
Machine Hours Required = 1

Product B:
Contribution Margin = $90 - $50 - $20 = $20
Labor Hours Required = 1
Machine Hours Required = 2

Based on the available labor and machine time, we can manufacture a maximum of:

- 500 units of A (since 2 hours of labor are required per unit, we can manufacture 1,000 / 2 = 500 units)
- 1,000 units of B (since 2 hours of machine time are required per unit, we can manufacture 2,000 / 2 = 1,000 units)

To maximize profitability, we need to choose the combination of products that generates the highest total contribution margin.

If we manufacture only Product A, the total contribution margin will be 500 units x $25 = $12,500.

If we manufacture only Product B, the total contribution margin will be 1,000 units x $20 = $20,000.

However, we have to consider the available labor and machine time. If we choose to manufacture 1,000 units of Product B, we will use up all the available machine time but only half of the available labor time. This means we can still manufacture 500 units of Product A using the remaining labor time.

Therefore, the best choice is to manufacture:

- 1,000 units of Product B, which will use up all the available machine time
- 500 units of Product A, which will use up half of the available labor time

This choice will generate a total contribution margin of 1,000 x $20 + 500 x $25 = $25,000, which is the highest possible.