Here is some information about 2 products: Product A Product B Selling Price per

Question

Here is some information about 2 products:

                                                                                              Product A         Product B

Selling Price per unit                                                                $90                 $100

Variable Cost per unit                                                               $50                  $55

Hours of processing required on a certain machine              2                       3

What is the contribution margin per unit of each product?

What is the contribution margin per hour of processing on this machine for each product?

If the amount of processing time on this machine is limited to 60 hours per week and the company produces only one of the 2 products, how many units of each product can this machine produce in one week and what is the total contribution margin that would be earned for each product?

Which product should it produce and why?

Explanation / Answer

Contribution margin per unit

Contribution margin per hour :

If Product A produced the (60/2) = 30 unit produced and contribution margin = 30*40 = 1200

If product B produce then (60/3) = 20 unit produced and contribution margin = 20*45 = 900

so produce A should produce because it gives higher contribution margin.

Product A Product B Selling price per unit 90 100 Variable cost per unit 50 55 Contribution margin per unit 40 45

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