Product A requires 5 machine hours per unit to be produced, Product B requires o

Question

Product A requires 5 machine hours per unit to be produced, Product B requires only 3 machine hours per unit, and the company's productive capacity is limited to 240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units of either product as it produces, the company should: A. Produce only Product A. B. Produce only Product B. C. Produce equal amounts of A and B. D. Produce A and B in the ratio of 62.5% A to 37.5% B. E. Produce A and B in the ratio of 40% A and 60% B.

Explanation / Answer

contribution margin per machine hr for Product A = (16-6)/5 =2 contribution margin per machine hr for Product B = (12-5)/3= 2.33 Since Product B has higher contribution margin per machine hr company should produce only Product B B. Produce only Product B.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

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