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 produce the product with the highest contribution margin per unit of machine time until we run out of machine time.

Product Q has a contribution margin of $3,200 per unit and requires 4 machine minutes per unit, so its contribution margin per minute of machine time is $800.

Product P has a contribution margin of $5,000 per unit and requires 5 machine minutes per unit, so its contribution margin per minute of machine time is $1,000.

Therefore, we should produce as much of product P as possible until we run out of machine time.

With 24,000 machine minutes, we can produce 4,800 units of product P (24,000 minutes / 5 minutes per unit) and earn a total contribution margin of $24,000,000.

So the largest possible total contribution margin that can be realized each period is $144,000 (4,800 units of P x $5,000 per unit).

The answer is B.

Consider the Following Production and Cost Data for Two Products