Question

Hamrick Industries makes and sells two products. The demand for both products is unlimited. Product A has a contribution margin of $7.70 per unit. Product B has a contribution margin of $2.64 per unit. The same machines are used to produce both products. Product A requires 0.33 machine hours and product B requires 0.20 machine hours. Which product should the company make and sell? Product A because the selling price is $11.00 per unit Product A because the contribution margin per unit is $7.70 Product A because the contribution margin per MH is $23.33 Product B because the contribution margin per MH is $13.20 Product B because the contribution margin per unit is $2.64

Answer 1

Answer: Product A because contribution margin per unit is $7.70

Step-by-step explanation:

Contribution margin is the difference between the sales price and the variable cost of a product, any product that has a positive contribution is worth investing in for the contribution will on the long run take off the fixed cost and company will subsequently makes a profit. However in a competitive situation the firm should chose a product with the higher contribution margin.

The price is not a strong determinant nor the contribution in relation to a single variable when the contribution per unit is giving.

Answer 2

Product A because the contribution margin per MH is $23.33

Step-by-step explanation:

In terms of efficiency, you have to look for the highest outcome with the fewer use of resources. In this case, the resources available are the machines, and the outcome is the profit (margin per unit). Applying the formula: Efficiency producing X (Ex) = [(1 hour of machine hour) / (Product x timed used per unit)]Margin per unit X, and comparing products A and B, you get that producing A is more efficient in terms of profits than producing B, by $10,1 per hour (23,33 - 13,2)