Billings Company produces two products, Product Reno and Product Tahoe. Each pro

Question

Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 3,280 hours per year. Product Reno has a unit contribution margin of $120 and requires five hours of painting department time. Product Tahoe has a unit contribution margin of $104 and requires four hours of painting department time. There are no other constraints.

Required:

1. What is the contribution margin per hour of painting department time for each product?

2. What is the optimal mix of products? If an amount is zero, enter "0".

3. What is the total contribution margin earned for the optimal mix?

Contribution Margin Reno $ Tahoe $

Explanation / Answer

1. Calculation of contribution margin per hour of painting department time for each product:

2. Optimal mix of products

Optimal product mix is 820 units for Tahoe as it has more contribution margin per hour.

3.  total contribution margin earned for the optimal mix
= 820 units x $104 per unit = $85,280

Calculation Contribution Margin per hour Reno $120/5 hours per unit $24 Tahoe $104/4 hours per unit $26

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