Consider the following production and cost data for two products, L and C: A total of 60,000 machine minutes are available each period and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?
A) $720,000
B) $840,000
C) $780,000
D) $1,560,000

Question

Consider the following production and cost data for two products, L and C:  A total of 60,000 machine minutes are available each period and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?
A) $720,000 
B) $840,000 
C) $780,000 
D) $1,560,000

Quizplus · Accepted Answer

To determine the optimal production quantity, we need to first find the contribution margin per unit of each product.

For product L: 
Contribution margin per unit = selling price - variable cost = $100 - $60 = $40

For product C: 
Contribution margin per unit = selling price - variable cost = $150 - $70 = $80

Next, we need to determine how many units of each product to produce. Since we have 60,000 machine minutes available, we can use the following linear programming model:

Maximize 40L + 80C 
Subject to: 
2L + 4C ≤ 60,000

Solving for L and C, we find that the optimal production quantities are: 
L = 15,000 units
C = 10,000 units

Therefore, the largest possible total contribution margin each period is: 
(15,000 units of L * $40 contribution margin per unit) + (10,000 units of C * $80 contribution margin per unit) = $840,000

Consider the Following Production and Cost Data for Two Products