Question

Pine Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down. The selling price, costs, and machine time requirements of the three products are as follows: Product A Product B Product C Selling price$5.00 $3.00 $5.00 Variable cost per unit$3.50 $2.00 $2.00 Machine hours per unit 0.75 0.25 1 Pine has unlimited demand for all its products. Which product/s should Pine Corp. produce to maximize profit while the machine is down

Answer 1

product B

Step-by-step explanation:

The computation is shown below;

Particulars Product A Product B Product C

Selling Price $5.00 $3.00 $5.00

Less: Variable cost per unit ($3.50) ($2.00) ($2.00)

Contribution per unit $1.50 $1.00 $3.00

Machine hours per unit 0.75 0.25 1

Contribution per machine hour $2.00 $4.00 $3.00

($1.50 ÷ 0.75) ($1.00 ÷ 0.25) ($3.00 ÷ 1)

The product B should be produced as it has the highest contribution per machine hour