A company offers two versions of its main products: basic and luxury. The manufa

Question

A company offers two versions of its main products: basic and luxury. The manufacturing process for these products is capital-intensive (i.e. primarily relies on the use of machines). The unit contribution margins for basic and luxury are $30 and $44 respectively. The company has 340 uncommitted hours of machine time that can be allocated to manufacturing more products. The machine hours used to produce one unit of basic is 1.25. The machine hours used per unit of luxury is 1.75. Calculate the contribution margin per machine hour for each product. Which product, basic or luxury, should be produced using the uncommitted machine hours? How many units of the product selected in part b) above will be produced using the uncommitted machine time? What is the company's increase in contribution margin if the product selected in part b) will be produced using the uncommitted machine time? The "check" button does not submit your attempt. To submit the attempt, go to the end of the quiz and click on the "submit all and finish" button.

Explanation / Answer

a) Contribution per Machine Hour = Contibution per unit/Machine hours per unit

Product "basic" = 30/1.25 = $24

Product "luxury" = 44/1.75 = $25.14

b) Product having higher Contribution Margin per Machine Hour should be produced, i.e. Product "luxury"

c) No of units of luxury using uncommitted machine hours = Uncommitted Hours/Machine hours per unit = 340/1.75 = 194.29 units

d) Increase in Contibution Margin = Contribution per unit * No of additional units = 44*194.29 = $8,548.76

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.