Whelchel Products Inc.makes two products-K12C and R25O.Product K12C's selling price is $56.00 and its unit variable cost is $33.60.Product R25O's selling price is $195.00 and its unit variable cost is $156.00.The monthly demand is 980 units for product K12C and 500 units for R25O.The constrained resource is a particular machine that is available for 10, 100 minutes each month.Each unit of product K12C requires 7 minutes on this machine and each unit of product R25O requires 15 minutes on this machine. What is the maximum contribution margin the company can earn per month?
A)$27, 820
B)$30, 376
C)$29, 155
D)$41, 452

Question

Quizplus · Accepted Answer

To find the maximum contribution margin, calculate the contribution margin per unit for each product and then determine the contribution margin per minute of machine time. K12C has a contribution margin of $22.40 per unit ($56 - $33.60) and R25O has a contribution margin of $39 per unit ($195 - $156). The contribution margin per minute for K12C is $3.20 ($22.40/7) and for R25O is $2.60 ($39/15). Since K12C has a higher contribution margin per minute, prioritize its production. The machine can produce 1,442 units of K12C (10,100/7), contributing $32,268.80 (1,442 * $22.40). The remaining time (10,100 - 1,442*7 = 6 minutes) is insufficient for R25O production. Thus, the maximum contribution margin is $32,268.80, which is closest to option B.