Greg’s Breads can produce and sell only one of the following two products: Oven

Question

Greg’s Breads can produce and sell only one of the following two products:

                                   Oven                    Contribution

                             Hours Required      Margin Per Unit

      Muffins                   0.2                             $3

      Coffee Cakes         0.3                             $4

The company has oven capacity of 1,200 hours. How much will contribution margin be if it produces only the most profitable product?

a.   $12,000

b.   $16,000

c.   $18,000

d.   $24,000

The answer is $18,000. I would like to see the process.

Explanation / Answer

c.   $18,000 Statement showing computations Particulars Muffins Coffee Cakes Contribution margin per unit                          3.00                        4.00 Oven Hours required                          0.20                        0.30 Contribution margin per oven hour                        15.00                      13.33 Ranking                          1.00                        2.00 Thus Muffin is most profitable Hours available                  1,200.00 Oven Hours required for Muffin                          0.20 Total Units of Muffin                  6,000.00 Contribution margin per unit                          3.00 TotalContribution                18,000.00

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