Question

Product K has a unit contribution margin of $120. Product L has a unit contribution margin of $100. Product K requires five furnace hours, while Product L requires four furnace hours. Determine the most profitable product, assuming the furnace is a bottleneck constraint.

Answer 1

Answer: Product L is more profitable

Step-by-step explanation:

The unit contribution margin per production of product K per bottleneck hour will be:

= $120/5

= $24

The unit contribution margin per production of product L per bottleneck hour will be:

= $100/4

= $25

Product L is more profitable as it gives a profit of ($25 - $24) = $1 more than product K