Clay Corporation manufactures two styles of lamps—a Bedford Lamp and a Lowell La

Question

Clay Corporation manufactures two styles of lamps—a Bedford Lamp and a Lowell Lamp. The following per unit data are available:

Bedford Lamp

Lowell Lamp

Sale price

$25

$35

Variable costs

$17

$23

Machine hours required for 1 lamp

2

4

Total fixed costs are $30,000. Marketing data indicate that the company can sell up to 8,000 units of the Bedford lamp and up to 4,000 units of the Lowell lamp. Machine hour capacity is 25,000 hours per year. What product mix will deliver the optimum operating income?

A) 4,500 Bedford lamps, 4,000 Lowell lamps

B) 12,500 Bedford lamps, zero Lowell lamps

C) 8,000 Bedford lamps, 2,250 Lowell lamps

D) 7,500 Bedford lamps, 3,000 Lowell lamps

3) True or False: Purely Pizza Company sells pizzas in two different sizes—medium and large. The number of medium pizzas sold is twice the number of large pizzas sold. The contribution margin of a medium pizza is $10 and the contribution margin of a large pizza is $16. The weighted average contribution margin is $15.

Bedford Lamp

Lowell Lamp

Sale price

$25

$35

Variable costs

$17

$23

Machine hours required for 1 lamp

2

4

Explanation / Answer

Bedford Lamp Lowell Lamp Sales Price 25 35 Variable cost 17 23 Contribution 8 12 Machine Hour Required 2 4 Contribution per Hour 4 3 Rank Based on Contribution/ hr 1 2 produce mAximum Bedford lamp 8000 units (25000-8000*2)/4 =2250 units 2250 units Hours required 16000 9000 hence sales MIX 8,000 Bedford lamps, 2,250 Lowell lamps medium large Sales Mix 2 1 Contribution 10 16 Weight 20 16 Weighted Contribtuion =(20+16)/3 12 Satement is false

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