Santorino Company produces two models of a component, Model K-3 and Model P-4. T

Question

Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.

Refer to Figure 13-5. What is the contribution margin per unit of scarce resource (machine time) for Model P-4?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part 1:

Model K3 requires .25 (15/60) machine hours

Model P4 requires .50 (30/60) machine hours

Since P-4 has higher contribution margin per machine hour, the company should produce 5500 units of P-4, which will require 2750 hours of machine time.

Remaining Machine Hours = 4000 - 2750 = 1250 Hours

Model K-3 Units = 1250/.25 = 5000 Units

Option E (5000 units) is the correct answer.

-----------

Part 2:

Model K3 requires .25 (15/60) machine hours

Model P4 requires .50 (30/60) machine hours

Since P-4 has higher contribution margin per machine hour, the company should produce 5500 units of P-4, which will require 2750 hours of machine time.

Option A (5500 units) is the correct answer.

Thanks.

Model K-3 Model P-4 Contribution margin per unit (A) 6 14 Hours of machine time (B) 0.25 0.5 Contribution margin per hour of machine time (A/B) 24 28

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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