Question

Knowledge Check 01 Product A Product B Selling price per unit$20 $15 Variable cost per unit 12 9 Contribution margin per unit$8 $6 Labor time4 minutes 2 Minutes Roberto, Inc. manufactures products A and B. Both products have a contribution margin ratio of 40%. Assume that labor time is the constrained resource and only a total of 3,000 minutes is available. Product A has a total demand of 500 units and product B has a total demand for 600 units. Considering the constraint, how many units of product B should be produced to maximize profits

Answer 1

Answer:

600 units

Explanation:

Determine the Contribution per limiting factor for the 2 products

Product A

Contribution per limiting factor = Contribution per unit / Amount of Limiting Factor required per unit

                                                   = $8 / 4

                                                   = $ 2

Product B

Contribution per limiting factor = Contribution per unit / Amount of Limiting Factor required per unit

                                                   = $6 / 2

                                                   = $ 3

From the Contribution per limiting factor for the 2 products it can be seen that Product B has the highest Contribution per limiting factor and should be manufactured first follows by Product A.

Thus total demand of  600 units will be satisfied.