The Mad Hatter Company owns a machine that manufactures two types of chimney caps. Production time is .20 hours for cap A and .40 hours for cap B. The machine's capacity is 2,000 hours per year. Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 1,000 units of cap A and 6,000 units of cap B. Selling prices and variable costs per unit are shown below. Based on this information, what is Mad Hatter's most profitable sales mix?
A) 10,000 units of cap A.
B) 5,000 units of cap B.
C) 1,000 units of cap A and 5,000 units of cap B.
D) 1,000 units of cap A and 6,000 units of cap B.
E) 1,000 units of cap A and 4,500 units of cap B.

Question

The Mad Hatter Company owns a machine that manufactures two types of chimney caps. Production time is .20 hours for cap A and .40 hours for cap B. The machine's capacity is 2,000 hours per year. Both products are sold to a single customer who has agreed to buy all of the company's output up to a maximum of 1,000 units of cap A and 6,000 units of cap B. Selling prices and variable costs per unit are shown below. Based on this information, what is Mad Hatter's most profitable sales mix? 
A) 10,000 units of cap A. 
B) 5,000 units of cap B. 
C) 1,000 units of cap A and 5,000 units of cap B. 
D) 1,000 units of cap A and 6,000 units of cap B. 
E) 1,000 units of cap A and 4,500 units of cap B.

Quizplus · Accepted Answer

Cap A Hourly Contribution Margin: $80 − 53 = $27 × 5 units per hour = $135 Cap B Hourly Contribution Margin: $60 − 42 = $18 × 2.5 units per hour = $45 Make maximum Cap A units: 1,000 units/5 units per hour = 200 hours for 1,000 units Use remaining hours for Cap B units: 2,000 − 200 = 1,800 hours remaining × 2.5 per hour = 4,500 units

The Mad Hatter Company Owns a Machine That Manufactures Two