Question

The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are as follows:

	Oxy Cleaner			Sonic Cleaner
Sales Price	$	75		$	44
Variable cost per unit		40			21

Total demand for Oxy is 10,000 units and for Sonic is 6,000 units. Machine time is a scarce resource. During the year, 50,000 machine hours are available. Oxy requires 4 machine hours per unit, while Sonic requires 2.5 machine hours per unit.

What is the maximum contribution margin Garrison can achieve during a year?

$444,250.

$1,014,000.

$488,000.

$855,500.

Answer 1

Machine time is a scarce resource
	Time is Key factor so we need to calculate first contribution per machine hour
oxy cleaner	1 unit = 4 hour
sonic Cleaner	1 unit = 2.5 hour
		Oxy Cleaner	Sonic Cleaner
Selling Price		75	44
Less Variable cost		40	21
Contribution per unit		35	23
Machine hour for one unit		4	2.5
So Contribution for per machine hour =		8.75(35/4)	9.2(23/2.5)
Highest contribution per machine hour for sonic cleaner high so first we make sonic cleaner
Available hour = 50000
For Sonic cleaner required hour = total unit * machine hour required to make each unit
	6000* 2.5 = 15000
Balance available time = 50000 -15000 = 35000
In this available time we can make oxy cleaner = 35000/4			8750
So in this available time we can make
oxy cleaner	8750 unit
sonicc cleaner	6000 unit
Contribution
oxy cleaner	8750*35	306250
sonic cleaner	6000*23	138000
Highest contribution		444250