Question

Zantaq Inc. has 5,490 machine hours available each month. The following information on the company's three products is available:

	Bookcases				Chairs				Side Tables
Contribution margin per unit	$	42.00			$	36.00			$	16.50
Machine hours per unit		3				2				1

The market demand is limited to 2,090 units of each of the three products. What is the maximum possible contribution margin that Zantaq could make in any month?

Answer 1

	Bookcases	Chairs	Side Tables
Contribution margin per unit	42	36	16.5
Machine hours per unit	3	2	1
Contribution margin per machine hour	42/3 = $14	36/2 = $18	16.50/1 = $16.50

Since Contribution margin per machine hour of chair is maximum, hence available machine hour will be used to produce chairs first. Any remaining machine hours will be used to produce side tables.

Production of chairs = 2,090 units

Machine hour per unit of Chairs = 2

Total machine hours used in producing chairs = Production of chairs x Machine hour per unit of Chairs

= 2,090 x 2

= $4,180

Remaining machine hours = Total machine hours - Total machine hours used in producing chairs

= 5,490-4,180

= 1,310

Machine hours per unit of side tables = 1

Production of side table = Remaining machine hours / Machine hours per unit of side tables

= 1,310/1

= 1,310

Contribution margin Schedule
	Chairs	Side Tables
Production (a)	2,090	1,310
Contribution margin per unit (b)	$36	$16.50
Total contribution margin (a x b)	$75,240	$21,615

Maximum possible contribution margin = Contribution margin from chairs + Contribution margin from side table

= 75,240+21,615

= $96,855