Question

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $28.5 and takes three machine hours to make. If there are 5000 machine hours available to manufacture a product, income will be the same if either product is made. $7500 less if Product A is made. $7500 more if Product A is made. $7500 less if Product B is made.

Answer 1

Answer:

$7500 less if Product A is made.

Explanation:

The number of units that can be produced for each of the products with 5,000 machine hours are:

$A =\frac{5,000}{2}\\ A=2,500\ units\\B =\frac{5,000}{3}\\ B=1,666.67\ units$

The incomes for each of the products are:

$I_A=\ 16*2,500\\I_A=\ 40,000\\I_B=\ 28.5*1,666.67\\I_B=\ 47,500$

Therefore, the income will be $7,500 more if product B is made, or $7,500 less if product A is made.