Question

ned needs to produce more of his two products in order to increase his net income and has found a way to increase the limited resource, machine hours. he has two products, hammers and screwdrivers.. the hammers have a contribution margin per unit of limited resource of $300 and a unit contribution margin of $150. the screwdrivers have a contribution margin per unit of limited resource of $280 and a unit contribution margin of $170. ned can dedicate an additional 120 machine hours to production this month. which product should he give the extra 120 hours to? select answer from the options below the screwdrivers, because they provide additional contribution margin of $33,600. the hammers, because they provide additional contribution margin of $36,000. the hammers, because they provide additional contribution margin of $18,000. the screwdrivers, because they provide additional contribution margin of $20,400.

Answer 1

Ned should give the extra 120 machine hours to the hammers because they provide an additional contribution margin of $36,000.

Step-by-step explanation:

To determine which product Ned should give the extra 120 machine hours to, we need to calculate the additional contribution margin for each product. The hammers have a contribution margin per unit of limited resource of $300, so with an additional 120 machine hours, the hammers will provide an additional contribution margin of 120 * $300 = $36,000. On the other hand, the screwdrivers have a contribution margin per unit of limited resource of $280, so with an additional 120 machine hours, the screwdrivers will provide an additional contribution margin of 120 * $280 = $33,600. Therefore, Ned should give the extra 120 hours to the hammers because they provide an additional contribution margin of $36,000.

Answer 2

Ned should allocate the additional 120 machine hours to produce hammers because they yield a higher total contribution margin of $36,000 compared to screwdrivers which would provide $33,600.

Step-by-step explanation:

To decide which product to allocate the additional 120 machine hours to, we should calculate the total additional contribution margin for each product. We have the contribution margin per unit of limited resource for hammers at $300 and screwdrivers at $280. We also have the unit contribution margin per product, being $150 for hammers and $170 for screwdrivers. While the unit contribution margin is higher for screwdrivers, what matters in this context is the contribution margin per unit of the limited resource, which represents the additional profit Ned would earn per machine hour if he produced that product.

The hammers would provide an additional contribution margin of 120 machine hours X $300 = $36,000. Meanwhile, the screwdrivers would provide an additional contribution margin of 120 machine hours X $280 = $33,600. Therefore, Ned should allocate the additional machine hours to produce hammers, as they yield a higher total contribution margin.