Question

Bramble Corp. can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $84 and takes two machine hours to make and Fancy has a unit contribution margin of $105 and takes three machine hours to make. There are 2400 machine hours available to manufacture a product. What should Bramble do?

Answer 1

--When resources are limited, (like in this case-machine hours), that product is to be produced that has MAXIMUM contribution margin per unit of that limited resource.

--Working

		Plain	Fancy
A	Unit Contribution margin	$84	$105
B	Machine hours per unit	2	3
C = A/B	Contribution margin per machine hour	$42 [Higher]	$35

--Since Contribution margin 'per machine hour ' for PLAIN is MORE, Bramble should focus on producing PLAIN product from available 2400 machine hours[ 2400 machine hours = 2400/2 = 1200 units of PLAIN = $ 100,800 Contribution margin]