Question

Sophamia Company sells five products, as follows.

Product A: Price per unit, $100 -- Variable cost per unit, $40 -- 3 machine hours required

Product B: Price per unit, $80 -- Variable cost per unit, $50 -- 2 machine hours required

Product C: Price per unit, $120 -- Variable cost per unit, $30 -- 5 machine hours required

Product D: Price per unit, $90 -- Variable cost per unit, $60 -- 1 machine hour required

Product E: Price per unit, $150 -- Variable cost per unit, $110 -- 4 machine hours required

Because of a delay in the delivery of new production machines, during the current year the scarce resource in Sophamia Company is MACHINE HOURS. Which product should the company emphasize in its marketing campaign?

Product E

Product A

Product B

Product C

Product D

Answer 1

The company should lay emphasis in the marketing strategy of Product D

Step-by-step explanation:

Product D has the most efficient contribution margin per machine hour.

The operation of a machine on hourly basis is used for cost finding and for determining operating effectiveness. The product with the least machine-hour ratio is always the most efficient and effective.

Product A requires 3 machine hours

Product B requires 2 machine hours

Product C, 5 machine hours

Product D, 1 machine hour

Product E, 4 machine hours

The least which is Product D will give the company best results.