Maximizing Contribution Margin Given a Limited Resource Restful Nights Inc., pro

Question

Maximizing Contribution Margin Given a Limited Resource Restful Nights Inc., produces both a queen- and a king-size soft mattress. Selected data related to each product follow: Only two employees are trained to stuff the secret soft ingredient into the mattresses. They have a maximum of 4,000 total stuffing hours per year. Required: A. What is the contribution margin per limited resource for each type of bed? Round final answers to the nearest dollar. B. Assuming that demand is not a constraint, how many queen- and king-size mattresses should be produced by Soft Mattress, Inc. considering available stuffing hours as a constraint resource?

Explanation / Answer

Contribution = Sales = Material - labour - variable overhead

Queen = 555-380-65-20 = 90

Contribution per hr = 90/1 = 90

King = 660-390-75-30 = 165

Contribution per hr = 165/3 = 55

B. If Stuffing hours is the only constraint

No of queen mattresses = total hours available / hour required for 1 mattress

                                       = 4000/1 =4000 mattress

No of King size possible = 4000/3 = 1333 mattresses

Total profit

Queen = 4000 * 90 = 360000

King = 1333 *165 = 219945

The company is earning higher margin in Queen size mattress, So they should divert their production in 4000 queen size units , and nil king size mattress. This is possible, since there is no constraint to produce minimum no of king size mattress gien in the problem.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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