Question

Sophamia Company sells five products, as follows. Product A: Price per unit, $100 -- Variable cost per unit, $40 -- 3 machine hours required Product B: Price per unit, $80 -- Variable cost per unit, $10 -- 2 machine hours required Product C: Price per unit, $120 -- Variable cost per unit, $30 -- 5 machine hours required Product D: Price per unit, $90 -- Variable cost per unit, $60 -- 1 machine hour required Product E: Price per unit, $150 -- Variable cost per unit, $110 -- 4 machine hours required Because of a delay in the delivery of new production machines, during the current year the scarce resource in Sophamia Company is MACHINE HOURS. Which product should the company emphasize in its marketing campaign

Answer 1

Answer: Product B

Explanation:

The product to be emphasized is the one that has the highest contribution margin per machine hour.

                                                                  A           B           C          D            E

Price                                                       100         80        120        90        150

Variable Cost                                        (40)        (10)        (30)       (60)       (110)

Contribution Margin per unit                 60         70         90         30          40

Machine hours requirement                  3           2            5            1            4

Contribution margin per machine hour 20        35          18          30         10

According to the Contribution Margin per machine hour, Product B should be emphasized as it gives the higher margin per unit.

This answer is based on the figures you gave so do crosscheck the figures given as there can be multiple variants of this question.