Question

Excel Memory Company can sell all units of a computer memory X and Y that it can produce, but it has limited production capacity. It can produce 2 units of X per hour or 3 units of Y per hour, and it has 4,000 production hours available.

Contribution Margin is $5 for product X and $4 for product Y.

1.) Calculate contribution margin per production hour.

Contribution Margin per Production hour.

Product X Product Y
Contribution Margin per unit $5 $4
Contribution Margin per Production hour

2.) What is the most profitable sales mix for this Company ? Choose from the following :

a.) Allocate all of its production capacity to Product Y.

b.) Allocate 40% of its production capacity to Product X.

c.) Allocate all of its production capacity to Product X.

d.) Allocate 24% of its production capacity to Product Y.

Answer 1

1.- contribution per hour

memory X 2.50 dollar per hour

memory Y 1.33 dollar per hour

c.) Allocate all of its production capacity to Product X.

Step-by-step explanation:

1.- contribution per hour of scarse resource:

Contribution Margin $ 5 $ 4

Constrain resource 2.00 3.00

CM per constrain $ 2.50 $ 1.33

As product X yields a higher contribution than product Y it is better to allolcate all the production capacity to product X