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 $32 and takes two machine hours to make and Product B has a unit contribution margin of $60 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be

A: the same if either product is made.
B:$4,000 more if Product A is made.
C:$4,000 less if Product B is made.
D: $4,000 less if Product A is made

Answer 1

The correct answer is option (d).

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

Contribution Margin for Product A = $32 ÷ 2 hours = $16

Contribution Margin for Product B = $60 ÷ 3 hours = $20

So, Income of Product A in 1,000 hours = $16 × 1,000 = $16,000

Income of Product B in 1,000 hours = $20 × 1,000 = $20,000

Hence, $4,000 less if Product A is made.