Question

Connolly Company produces two types of lamps, classic and fancy, with unit contribution margins of $13 and $21, respectively. Each lamp must spend time on a special machine. The firm owns four machines that together provide 18,000 hours of machine time per year. The classic lamp requires 0.20 hours of machine time, the fancy lamp requires 0.50 hours of machine time. A maximum of 60,000 units of each lamps can be sold. ​ What is the total contribution margin of the optimal mix of classic and fancy lamps?

Answer 1

Total contribution margin of the optimal mix =$ 1,032,000

Step-by-step explanation:

Whenever a company is faced with a limiting factor i.e a resource in short supply, the company should allocate the resource to the product with he highest contribution per unit of the scare resource

Product Cont/unit machine hr /unit cont/hr Ranking

classic $13 per unit 0.2 hour 65 per hour Ist

Fancy $21 per unit 0.5 hour $42 per hour 2nd

The company should use all of its limited 18,000 machine hours to produce the two products as follows:

Product units machine hr /unit Machine hours Total contribution

Classic 60,000 0.2 12,000 780,000

Fancy 12,000** 0.5 6,000 * 252,000

18,000 $ 1,032,000

Total contribution margin of the optimal mix =$ 1,032,000

* this represent balance of machine hours after 12,000 had been devoted to the production of classic

** This is quantity of Fancy that can be produced using 6000 hours

= 6000/0.5 = 12,000 units