The management of Cerruto Corporation has provided the following data concerning its two products: The constrained resource is a particular machine that is available for 9,600 minutes each month.
-What is the maximum contribution margin the company can earn per month?
A) $144,270
B) $114,045
C) $107,781
D) $101,370

Question

The management of Cerruto Corporation has provided the following data concerning its two products:  The constrained resource is a particular machine that is available for 9,600 minutes each month.
-What is the maximum contribution margin the company can earn per month?
A) $144,270 
B) $114,045 
C) $107,781 
D) $101,370

Quizplus · Accepted Answer

To find the maximum contribution margin, we need to use linear programming. Let's define our variables:
x = units of product A
y = units of product B

Our objective function is the contribution margin, which is given by:
CM = 50x + 80y

Our constraints are:
- Machine time: 0.1x + 0.2y ≤ 9600 (in minutes)
- Demand for product A: x ≤ 4000
- Demand for product B: y ≤ 16000

We also have non-negativity constraints:
x ≥ 0
y ≥ 0

Using a linear programming software or calculator, we can find that the maximum contribution margin is $114,045, which occurs at the following production levels:
x = 4000 (produce all of product A)
y = 6800 (produce 6800 units of product B)

Therefore, the best choice is B.

The Management of Cerruto Corporation Has Provided the Following Data