Capital Corporation manufactures and sells three different types of binoculars.

Question

Capital Corporation manufactures and sells three different types of binoculars. They are referred to as Good, Better, and Best binoculars. Grinding and polishing time is limited. More time is required to grind and polish the lenses used in the Better and Best binoculars. Additional information is provided below.

Product
Good Better Best
Selling price $83.46 $320.72 896.40
Variable costs and expenses 48.06 183.12 451.10
Contribution margin $35.40 $137.60 $445.30
Grinding and polishing time required 0.6 hrs 1.6 hrs 6.1 hrs

Ignoring the time constraint, what strategy would appear to be optimal? Produce more units.



What is the contribution margin per unit of limited resource for each type of binocular?

Good $
Better $
Best $




If additional grinding and polishing time could be obtained, how should the additional capacity be used? Produce more units.

Explanation / Answer

Contribution margin per unit per hour of grinding time for each type are: Good 35.40/0.6=$59 Better 137.60/1.6= $86 Best 445.30/6.1= $73. So if grinding and polishing time is a scarce resource, it should be used on better first, best second, and good third, in order of contribution margin per hour of grinding time. (It is a little unclear to me if there is more to the question than this, so if there is please be specific as to what it is).

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