Question

Bramble Corp. can produce and sell only one of the following two products: Oven Contribution Hours Required Margin Per Unit Muffins 0.2 $6 Coffee Cakes 0.3 $7 The company has oven capacity of 1500 hours. How much will contribution margin be if it produces only the most profitable product

Answer 1

Product M Product C

Contribution margin per unit (a) $6 $7

Oven hours (b) 0.2 0.3

Contribution margin per oven (a/b) $30 $23.33

Here, the most profitable product is product M (Muffins).

Contribution margin = Contribution margin per oven * Oven capacity

Contribution margin = $30 * 1500 hours

Contribution margin = $45,000

So, the contribution margin of company is $45,000 if it produces only the most profitable product.