Question

Logan Company can sell all of the standard and premier products they can produce, but it has limited production capacity. It can produce 8 standard units per hour or 5 premier units per hour, and it has 33,000 production hours available. Contribution margin per unit is $22 for the standard product and $30 for the premier product. What is the most profitable sales mix for Logan Company

Answer 1

Answer:

Standard production is more profitable.

Most profitable sales mix = 264,000 standard units (and 0 premier unit)

Explanation:

As per the data given in the question,

For standard product :

Contribution margin for every hour = 8 × $22

= $176

For premier product :

Contribution margin for every hour = 5 × $30

= $150

As, contribution margin of standard product is greater than premier product, Therefore, Logan company should employ all the production hours to produce only standard product to get the maximum profit.

Therefore, Most profitable sales mix = 33,000 hours × 8 unit per hour

= 264,000 standard units (and 0 premier unit)