Consider the following production and cost data for two products, Q and P: A total of 24, 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)$120, 000
B)$144, 000
C)$456, 000
D)$132, 000

Question

Consider the following production and cost data for two products, Q and P:  A total of 24, 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)$120, 000 
B)$144, 000 
C)$456, 000 
D)$132, 000

Quizplus · Accepted Answer

To maximize the total contribution margin, we need to determine the optimal production quantities for each product. We can do this by calculating each product's contribution margin per unit of machine time and then producing as many units of each product as possible within the available machine time.

Product Q: 
- Contribution Margin per unit = $40 - $20 - $5 = $15
- Machine time per unit = 4 minutes
- Maximum units that can be produced = 24,000 / 4 = 6,000 units
- Total contribution margin for Q = 6,000 x $15 = $90,000

Product P: 
- Contribution Margin per unit = $80 - $30 - $5 = $45
- Machine time per unit = 6 minutes
- Maximum units that can be produced = 24,000 / 6 = 4,000 units
- Total contribution margin for P = 4,000 x $45 = $180,000

Therefore, the largest possible total contribution margin that can be realized each period is:

$90,000 + $180,000 = $270,000

The only choice that is closest to this amount is B: $144,000.

Consider the Following Production and Cost Data for Two Products