Lightning Corporation operates a manufacturing company with total available capa

Question

Lightning Corporation operates a manufacturing company with total available capacity per year of 204,000 minutes. Lightning produces two models of widgets, Premium and Superior. There is unlimited demand for each product. Information relating to the products is as follows: Premium Superior Contribution margin per unit $54 $40 Machine minutes needed per unit 12 8 What is the largest possible total contribution margin that can be realized each period? A. $1,020,000 B. $969,000 C. $918,000 D. $1,938,000

Explanation / Answer

Calculation of contibution margin per minute for each model Premium Superior Contribution margin per unit $54.00 $40.00 / Machine minutes needed per unit 12 8 Contribution Margin per minute $4.50 $5.00 As the contribution margin per minute of Superior is higher , we will give priority to production of this model with available minutes. Hence , the largest possible total contribution margin that can be realized each period = Available capacity in minutes * Contribution Margin per minute of Superior model The largest possible total contribution margin that can be realized each period = 204000 minutes * $5 per minute = $10,20,000 The answer is Option A.

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