LeBron Corporation manufactures two products, XX and YY.The following information was gathered: $$\begin{array} { l c r }
& \mathrm { XX } & \mathrm { YY } \
\text { Selling price per unit } & \$ 37.00 & \$ 26.00 \
\text { Variable cost per unit } & 32.00 & 22.00 \
\text { Total fixed costs } & { \$ 18,000 }
\end{array}$$ If LeBron Corporation could produce and sell either 10,000 units of XX or 5,000 units of YY at full capacity, it should produce and sell _____.
A)5,000 units of YY and none of XX
B)3,000 units of YY and 6,000 units of XX
C)10,000 units of XX and none of YY
D)either XX or YY because LeBron is indifferent to whether XX or YY is produced

Question

LeBron Corporation manufactures two products, XX and YY.The following information was gathered: $$\begin{array} { l c r } 
& \mathrm { XX } & \mathrm { YY } \
\text { Selling price per unit } & \$ 37.00 & \$ 26.00 \
\text { Variable cost per unit } & 32.00 & 22.00 \
\text { Total fixed costs } &  { \$ 18,000 }
\end{array}$$ If LeBron Corporation could produce and sell either 10,000 units of XX or 5,000 units of YY at full capacity, it should produce and sell _____.
A)5,000 units of YY and none of XX
B)3,000 units of YY and 6,000 units of XX
C)10,000 units of XX and none of YY
D)either XX or YY because LeBron is indifferent to whether XX or YY is produced

Quizplus · Accepted Answer

To determine which product LeBron Corporation should produce and sell, we calculate the contribution margin per unit for each product and then the total contribution margin at full capacity. The contribution margin per unit is the selling price per unit minus the variable cost per unit.For XX:- Contribution margin per unit = $37 - $32 = $5- Total contribution margin at full capacity (10,000 units) = $5 * 10,000 = $50,000For YY:- Contribution margin per unit = $26 - $22 = $4- Total contribution margin at full capacity (5,000 units) = $4 * 5,000 = $20,000Given the total fixed costs of $18,000, producing and selling 10,000 units of XX would result in a higher total contribution margin ($50,000) compared to producing and selling 5,000 units of YY ($20,000). Therefore, LeBron Corporation should produce and sell 10,000 units of XX and none of YY to maximize profit.

LeBron Corporation Manufactures Two Products, XX and YY If LeBron Corporation Could Produce and Sell Either 10,000 Units