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

Answer 1

C. Product A because the contribution margin per MH is $23.33.

Step-by-step explanation:

The computation is shown below:

Particulars Product A Product B

Contribution margin per unit $7.70 $2.64

Divide by machine hours per unit 0.33 0.20

Contribution margin per MH $23.33 $13.20

The company should make and sell the product A as in this the contribution margin per machine hour would be high as compared with the product B