Sweet Taste has the capacity to produce either 45,000 corncob pipes or 21,000 co

Question

Sweet Taste has the capacity to produce either 45,000 corncob pipes or 21,000 cornhusk dolls per year. The pipes cost $3.00 each to produce and sell for $7.50 each. The dolls sell for $10.00 each and cost $4.00 to produce. Required Calculate the contribution margin per unit and the total contribution margin for Pipes and Dolls. Assuming that Sweet Taste can sell all it produces of either product, should it produce the corncob pipes or the cornhusk dolls? (Round "Contribution margin per unit" answers to 2 decimal places.)

Explanation / Answer

Contribution margin statement of sweet taste

Decision

Sweet taste should produce corncob pipes as it gives more contribution.

Particulars P Pipes dolls Sale price per unit 7.50 10.00 Cost to produce 3.00 4.00 Contribution margin per unit 4.50 6.00 Production in Units 45000 21000 Total contribution $202,500 126,000

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