Gordon Company produces two types of gears, Gear Q and Gear S, with unit contrib

Question

Gordon Company produces two types of gears, Gear Q and Gear S, with unit contribution margins of $2 and $5, respectively. Each gear must spend time on a special machine. The firm owns ten machines that together provide 25,000 hours of machine time per year. Gear Q requires 0.10 hours of machine time; Gear S requires 0.4 hours of machine time

A.
What is the contribution margin per hour of machine time for Gear Q?
What is the contribution margin per hour of machine time for Gear S?
B.
Suppose that Gordon cannot sell more than 200,000 units of each type of gear.
How many units of Gear Q should be produced?
How many units of Gear S should be produced?
What is the total contribution margin from this product mix?

Explanation / Answer

A Gear Q 2/.10= $20 per hour of machine time Gear S 5/.4= $12.50 per hour of machine time B Gear Q 200,000 units for $400,000 of margin (20,000 hours of machine time) Gear S 12,500 units for $62,500 of margin (5,000 hours left 5,000/.4= 12,500 units). Total $462,500

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