Delfi Company produces two models of seats, Toro and Prep. Information regarding
ID: 2623116 • Letter: D
Question
Delfi Company produces two models of seats, Toro and Prep. Information regarding these products for May follows:
Toro
Prep
Number of units
3,000
7,000
Sales revenue
$120,000
$140,000
Variable costs
60,000
42,000
Fixed costs
24,000
50,000
Net Income
$36,000
$48,000
Pounds of plastic to produce one bucket
4.0
1.6
Contribution margin per unit
$20
$14
Due to increased demand of plastic in the market, Delfi Company can obtain only 9,000 pounds of plastic per month. Delfi can sell as many seats as it can produce of either model. How many of each model should Delfi produce to maximize profit in May considering the constraint?
Question 17 options:
Toro: 0; Prep: 4,375
Toro: 2,250; Prep: 0
Toro: 1,125; Prep: 2,812
Toro: 0; Prep: 5,625
Toro
Prep
Number of units
3,000
7,000
Sales revenue
$120,000
$140,000
Variable costs
60,000
42,000
Fixed costs
24,000
50,000
Net Income
$36,000
$48,000
Pounds of plastic to produce one bucket
4.0
1.6
Contribution margin per unit
$20
$14
Explanation / Answer
Hi,
Please find the detailed answer as follows:
Contribution Margin (Constraint) = Toro = Contribution Margin/Constraint = 20/4 = 5
Contribution Margin (Constraint) = Prep = Contribution Margin/Constraint = 14/6 = 2.33
Since the company can only arrange 9000 pounds of plastic, it should produce 9000/4 =2250 units of Toro as it generates the maximum contribution.
Answer is Option B (Toro: 2,250; Prep: 0)
Thanks.
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