Consider the following production and cost data for two products, Q and P:$\begin{array}{lrr}
&\text { Product O}&\text {product P}\
\text { Contribution margin per unit } &£40&£36\
\text { Machine minutes needed per unit} &8 \text { minutes } &6 \text { minutes } \
\text { } &\
\text { } &\
\text { } &\
\end{array}$

A total of 24,000 machine minutes are available each period and there is virtually unlimited demand for each product. What is the largest possible total contribution margin that can be realised 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:$\begin{array}{lrr}
&\text { Product O}&\text {product P}\
 \text { Contribution margin per unit } &£40&£36\
 \text {  Machine minutes needed per unit} &8 \text { minutes } &6 \text { minutes } \
 \text {  } &\
 \text {  } &\
 \text {  } &\
\end{array}$

A total of 24,000 machine minutes are available each period and there is virtually unlimited demand for each product. What is the largest possible total contribution margin that can be realised 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 produce the product with the highest contribution per machine minute. 
For product Q, the contribution per machine minute is £6, while for product P it is £8. Therefore, we should produce as much of product P as possible within the available machine minutes. 
The maximum production of P is 18,000 units (using 18,000 machine minutes), which will generate a total contribution of £144,000 (£8 contribution per unit x 18,000 units). 
Producing any amount of Q alongside P will reduce the total contribution margin, as its lower contribution per machine minute will reduce the overall contribution generated by both products.

Consider the Following Production and Cost Data for Two Products