Question

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $14 and takes two machine hours to make and Product B has a unit contribution margin of $30.0 and takes three machine hours to make. If there are 5000 machine hours available to manufacture a product, income will be $15000 less if Product A is made. the same if either product is made. $15000 less if Product B is made. $15000 more if Product A is made.

Answer 1

Correct statement:

income will be $15000 less if Product A is made

Step-by-step explanation:

Contribution if all units made are Product A:

5,000 machine hours / 2 hours per unit: 2,500 units

2,500 units x $14 per unit: $ 35,000

Contribution if all units made are Product B:

5,000 machine hours / 3 hours per unit: 1,666.67 units

1,666.67 units x $30 per unit: $ 50,000

There is a difference of 50,000 - 35,000 = 15,000 in favor to produce B