Murphy’s, Inc. has the following production and cost data for two of its product
ID: 2499691 • Letter: M
Question
Murphy’s, Inc. has the following production and cost data for two of its products, Standard and Deluxe:
Standard Deluxe
Contribution margin per unit $49.50 $33.03
Machine hours needed per unit 1.80 0.90
A total of 83,000 hours is available each period for the production of the two products. The demand for both products is strong and Murphy will be able to sell as many of either product as it can produce. Ignoring qualitative issues, which of the two products should Murphy produce? (Round answers to 2 decimal places, e.g. 1.64.)
Standard Deluxe
Contribution margin per constraint $ $
Murphy should produce the_______________ product.
Explanation / Answer
Since machine hour is a limiting factor, we need to compute contribution margin per machine hour.
Contribution margin per machine hour = contribution margin per nit/ machine hour required per unit
Contribution margin per machine hour (Standard) = 49.50/1.80
= 27.50
Contribution margin per machine hour (Deluxe) = 33.03/0.90
= 36.70
Murphy should produce deluxe product as it has higher contribution margin per machine hour.
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