Question

Bricktan Inc. makes three products, basic, classic, and deluxe. The maximum Bricktan can sell is 75,000 units of basic, 420,000 units of classic, and 120,000 units of deluxe. Bricktan has limited production capacity of 90,000 hours. It can produce 10 units of basic, 8 units of classic, and 4 units of deluxe per hour. Contribution margin per unit is $15 for the basic, $25 for the classic, and $55 for the deluxe. What is the total contribution margin if Bricktan chooses the most profitable sales mix

Answer 1

To find Bricktan Inc.'s most profitable sales mix, calculate the contribution margin per hour for each product, then prioritize production based on which items yield the highest margins within production and market constraints.

Step-by-step explanation:

To determine the most profitable sales mix for Bricktan Inc., we need to consider the contribution margins of the products and the production hours required for each. Since the contribution margin provides the profit from each unit after variable costs are subtracted, and the company has a limited production capacity, the goal is to maximize the total contribution margin within the production constraints.

First, we calculate the contribution margin per hour for each product:

• Basic: $15 per unit × 10 units per hour = $150 per hour
• Classic: $25 per unit × 8 units per hour = $200 per hour
• Deluxe: $55 per unit × 4 units per hour = $220 per hour

Since the deluxe product provides the highest contribution margin per hour, Bricktan should produce as many deluxe units as the market will bear, followed by the classic, and then the basic products.