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Katena32 [7]
3 years ago
13

Crane Company can produce and sell only one of the following two products: Oven Contribution Hours Required Margin Per Unit Muff

ins 0.2 $4 Coffee Cakes 0.3 $5 The company has oven capacity of 3000 hours. How much will contribution margin be if it produces only the most profitable product?
Business
2 answers:
Makovka662 [10]3 years ago
8 0

The question is reproduced in the table below for clarity                        

                               Oven                                  Contribution

                         Hours Required                 Margin Per Unit

Muffins                        0.2                                           $4

Coffee Cakes        0.3                                        $5

Answer:

Total contribution margin = $ 60,000.00

Explanation:

<em>When a business is faced with a problem of shortage of a resource which can be used to produced more than one product type, to maximize the use of the resource , the business should allocate it for production purpose in  such a way that it maximizes the contribution per unit of the scare resource.</em>

Therefore Crane Company should alocate the oven hours to maximise the contribution per unit of oven hour. This is done as follows:

Step 1

<em>Calculate he contribution per oven hour and rank the product</em>

                                                                      cont/hr                   ranking

Muffin                        $4/0.2 hour =              20                     <em> 1st</em>

Coffee cakes                 $5/0.3 hour=        16.67                      2nd

<em>Because Muffin generates the highest contribution per hour of Oven, Crane should allocate all the resource to it</em>

Step 2

<em>Calculate the Total contribution from the production of Muffin</em>

Total contribution margin = 20 per her × 3000

                                        = $ 60,000.00

Kay [80]3 years ago
5 0

Answer:

Explanation:

Given:

Muffins

Contribution hours = 0.2

Margin per unit = $4

Coffee Cakes

Contribution hours = 0.3

Margin per unit = $5

Required margin per unit contribution hours, muffins = 4/0.2

= $ 20

Required margin per unit contribution hours, coffee cakes = 5/0.3

= $ 16.67

For the most profitable product, muffins = $ 20 per unit contribution hours.

At 3000 hours of oven contribution hours,

Contribution margin = $ 20 × 3000

= $ 60,000 per unit.

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