Answer:
Total Contribution Margin by choosing most profitable sales mix = 3,418,800$
Explanation:
Given Data:
Total Production Hours = 3,700 Hours
Production Hours required for Plush (P) Units = 1/4 = 0.25 Hours
Production Hours required for Supreme (S) Units = 1/2 = 0.5 Hours
Total Production Hours (PH) will be given by:
PH = 0.25 P + 0.5 S - Say equation 1
Similarly we have:
Contribution margin from Plush (P) Units = 231 $
Contribution margin from Supreme (S) Units = 317$
Total Contribution Margin:
Contribution Margin = 231 P +317 S - Say equation 2
Now using intuitive approach:
Since we Supreme units consume 50% more production hours as compared to Plush units whereas on the other side, Supreme Units give only 38% ((317-231)/231)*100) more contribution margin, So our target will be to produce minimum possible Supreme Units.
Thus as far as their are no production constraints on Supreme units (as in the given question), we will produce only Plush units for all given 3700 production hours.
Thus by using equation 1, and putting S=0 & PH = 3700, we get:
3700 = 0.25 P + 0
P = 14,800 Units
Now using equation 2 we will have total contribution margin by putting P = 14,800 & S=0 as under:
Contribution Margin = (231 * 14800) + (317 * 0)
Total Contribution Margin = 3,418,800$
