The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. T

Question

The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows:

Total demand for Oxy is 10,000 units and for Sonic is 6,000 units. Machine time is a scarce resource. During the year, 50,000 machine hours are available. Oxy requires 4 machine hours per unit, while Sonic requires 2.5 machine hours per unit.

What is the maximum contribution margin Garrison can achieve during a year?

$444,250.

$1,014,000.

$488,000.

$855,500.

Explanation / Answer

Machine time is a scarce resource Time is Key factor so we need to calculate first contribution per machine hour oxy cleaner 1 unit = 4 hour sonic Cleaner 1 unit = 2.5 hour Oxy Cleaner Sonic Cleaner Selling Price 75 44 Less Variable cost 40 21 Contribution per unit 35 23 Machine hour for one unit 4 2.5 So Contribution for per machine hour = 8.75(35/4) 9.2(23/2.5) Highest contribution per machine hour for sonic cleaner high so first we make sonic cleaner Available hour = 50000 For Sonic cleaner required hour = total unit * machine hour required to make each unit 6000* 2.5 = 15000 Balance available time = 50000 -15000 = 35000 In this available time we can make oxy cleaner = 35000/4 8750 So in this available time we can make oxy cleaner 8750 unit sonicc cleaner 6000 unit Contribution oxy cleaner 8750*35 306250 sonic cleaner 6000*23 138000 Highest contribution 444250

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