Question

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $28.5 and takes three machine hours to make. If there are 5000 machine hours available to manufacture a product, income will be the same if either product is made. $7500 less if Product A is made. $7500 more if Product A is made. $7500 less if Product B is made.

Answer 1

$7500 less if Product A is made.

Step-by-step explanation:

The number of units that can be produced for each of the products with 5,000 machine hours are:

`A =(5,000)/(2)\\ A=2,500\ units\\B =(5,000)/(3)\\ B=1,666.67\ units\\`

The incomes for each of the products are:

`I_A=\$16*2,500\\I_A=\$40,000\\I_B=\$28.5*1,666.67\\I_B=\$47,500\\`

Therefore, the income will be $7,500 more if product B is made, or $7,500 less if product A is made.