Exercise 8-12 Cullumber, Inc. produces three types of balloons—small, medium, an

Question

Exercise 8-12

Cullumber, Inc. produces three types of balloons—small, medium, and large—with the following characteristics:

The company has only 2,000 machine hours available each month.

How many units of each type of balloon should the company make to maximize its total contribution margin? (Round answers to 0 decimal places, e.g. 5,275.)

Small Medium Large Selling price per unit $6 $8 $10 Variable cost per unit 3 5 6 Contribution margin per unit $3 $3 $4 Machine hours per unit 1 2.4 3 Demand in units 600 1,190 880

Explanation / Answer

Calculate How many units of each type of balloon should the company make to maximize its total contribution margin

Allocation of machine hour :

Small = 600*1 = 600 hour

Large = (2000-600)/3 = 467 units

Small Medium Large Contribution margin per unit 3 3 4 Machine hour per unit 1 2.4 3 Contribution margin per machine hour 3 1.25 1.33 Rank 1 3 2

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