Question

Consider the following production and cost data for two products, L and C:

	Product L	Product C
Contribution margin per unit	$27	$22
Machine-hours needed per unit	3 hours	2 hours

The company can only perform 14,500 machine hours each period, due to limited skilled labor and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?

Multiple Choice

• $145,000

• $149,750

• $159,500

• $174,000

Answer 1

Correct answer-------------$159,500

Working

Units sold for Product C	7,250
CM per unit	$            22.00
Total Contribution margin	$ 159,500.00

.

Statement of Ranking
	Product L	Product C
Contribution margin per unit	$            27.00	$      22.00
Divided by: Machine Hours required	3	2
Contribution margin per machine hour	$               9.00	$      11.00
Produce	Second	First

.

	Units to be produced	Machine hour per unit	Total machine hour consumed
Product L	-	3	-
Product C	7,250	2	14,500
Total			14,500

Only product C will be produced as it gives highest contribution margin per machine hour.