Murphy’s, Inc. has the following production and cost data for two of its product

Question

Murphy’s, Inc. has the following production and cost data for two of its products, Standard and Deluxe:

A total of 81,000 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 unit $60.04 $33.92 Machine hours needed per unit 1.90 0.80

Explanation / Answer

Murphy should produce deluxe.

(since its contribution per machine hour is higher).

working:

here constraining factor is machine hours, so contribution per machine hours is to be found out.

contribution per margin constraint = contribution margin per unit / machine hours needed per unit

for

standard = $60.04/1.90

=>$31.60 per machine hour.

deluxe =$33.92/0.80

=>$42.40.

Standard deluxe Contribution margin per constraint $31.60 $42.40

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