Consider the following production and cost data for two products,L and C:
$\begin{array}{|l|r|r|}
\hline & \text { Product L } & \text { Product C } \
\hline \text { Contribution Margin per Unit } & \$ 130 & \$ 120 \
\hline \text { Machine Setups Needed per Unit } & 10 \text { setups } & 8 \text { setups } \
\hline
\end{array}$
The company can only perform 65,000 machine setups each period due to limited skilled labour,and there is unlimited demand for each product.What is the largest possible total contribution margin that can be realized each period?
A) $845,000.
B) $910,000.
C) $975,000.
D) $1,820,000.

Question

Quizplus · Accepted Answer

To maximize the total contribution margin, the company should focus on the product with the highest contribution margin per setup. For Product L, the contribution margin per setup is $130/10 = $13. For Product C, it's $120/8 = $15. Since Product C has a higher contribution margin per setup, the company should prioritize Product C. With 65,000 setups available and each unit of Product C requiring 8 setups, the company can produce 65,000 / 8 = 8,125 units of Product C. The total contribution margin for Product C is then 8,125 units * $120 = $975,000.

Consider the Following Production and Cost Data for Two Products,L