QUESTION 26 A company makes two products. The company can sell all of either pro

Question

QUESTION 26 A company makes two products. The company can sell all of either product it can make. The relevant data for these two products follows Product A i hour $15 S10 Product B Machine time per unit Selling price per unit Variable costs per unit 520 910 Total fixed overhead is $250,000. The company has 100,000 machine hours available for production. The company should select which product to maximize operating profits? O Product A because it uses less machine time O Product A because its contribution margin per machine hour is $5.00. O Product B because its contribution margin per unit is $10 O Product B because its contribution margin per machine hour is $6.67

Explanation / Answer

Hence product having highest Contribution margin/limited resource must be produced in order to maximize operating profits.

Hence the correct option is D.

A B Contribution margin per unit(Sales-Variable costs) (15-10)=$5 (20-10)=$10 Contribution margin/machine time (5/1)=$5/hour (10/1.5)=$6.67(Approx).

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