Question

Vaughn Manufacturing can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $86 and takes two machine hours to make and Fancy has a unit contribution margin of $111 and takes three machine hours to make. There are 2400 machine hours available to manufacture a product. What should Vaughn do?

Answer 1

Answer:

Vaughn should produce Plain as it makes greater profit.

Explanation:

Vaughn Manufacturing can sell all the units it can produce of either Plain or Fancy but not both.

Plain has a unit contribution margin of $86 and takes two machine hours to make and Fancy has a unit contribution margin of $111 and takes three machine hours to make.

There are 2400 machine hours available to manufacture a product.

Profit per machine hour for Plain

= $\frac{86}{2}$

= $43

Profit per machine hour for Fancy

= $\frac{111}{3}$

= $37

The difference in profit

= $43 - $37

= $6

Plain makes $6 more profit per machine hour than Fancy.