(1) Santorino Company produces two models of a component, Model K-3 and Model P-

Question

(1)

Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.

Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model K-3 should be produced?

5,500

312

1,250

2,750

5,000

(2)

Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.

Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model P-4 should be produced?

5,500

5,000

1,250

2,750

1,375

5,500

312

1,250

2,750

5,000

(2)

Santorino Company produces two models of a component, Model K-3 and Model P-4. The unit contribution margin for Model K-3 is $6; the unit contribution margin for Model P-4 is $14. Each model must spend time on a special machine. The firm owns two machines that together provide 4,000 hours of machine time per year. Model K-3 requires 15 minutes of machine time; Model P-4 requires 30 minutes of machine time.

Refer to Figure 13-5. Now suppose that Santorino Company can sell only 5,500 units of each model. How many units of Model P-4 should be produced?

5,500

5,000

1,250

2,750

1,375

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part 1:

Model K3 requires .25 (15/60) machine hours

Model P4 requires .50 (30/60) machine hours

Since P-4 has higher contribution margin per machine hour, the company should produce 5500 units of P-4, which will require 2750 hours of machine time.

Remaining Machine Hours = 4000 - 2750 = 1250 Hours

Model K-3 Units = 1250/.25 = 5000 Units

Option E (5000 units) is the correct answer.

-----------

Part 2:

Model K3 requires .25 (15/60) machine hours

Model P4 requires .50 (30/60) machine hours

Since P-4 has higher contribution margin per machine hour, the company should produce 5500 units of P-4, which will require 2750 hours of machine time.

Option A (5500 units) is the correct answer.

Thanks.

Model K-3 Model P-4 Contribution margin per unit (A) 6 14 Hours of machine time (B) 0.25 0.5 Contribution margin per hour of machine time (A/B) 24 28

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