Ring Company manufactures two tables, Small and Large. The following data is ava

Question

Ring Company manufactures two tables, Small and Large. The following data is available:
Small Large

Selling price per unit $100 $210
Variable cost per unit $68 $138
Machine hours required 3.2 10
Total fixed costs $9,600

Ring Company can sell a maximum of 1,000 units of each size of table. Machine hour capacity is 8,000 hours per year.

Required:

a. Which table has the higher contribution margin per unit?
b. Which table has the higher contribution margin per hour?
c. How many tables of each size should be produced to maximize income, and what is the maximum income?

Explanation / Answer

a. Which table has the higher contribution margin per unit? Small: contribution margin per unit = 100-68 = 32 Large: Contribution margin per unit = 210-138 = 72 Answer: Large b. Which table has the higher contribution margin per hour? Small: contribution margin per hour = 32/3.2 = 10.00 per hour Large: contribution margin per hour = 72/10 = 7.20 per hour Answer: small c. How many tables of each size should be produced to maximize income, and what is the maximum income? Make 1,000 small tables: 1,000*3.2 = 3,200 machine hours 8000-3200 = 4800 machine hours left to make large tables. 4800/10 = 480 large tables Net income = 1,000*32 + 480*72 – 9600 = 56,960 Answer: 1,000 small tables, 480 large tables, $56,960 net income

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