Question

Pho Real designs luxury Vietnamese beef noodle bowls. Standard Bowl Luxury Bowl CM per unit $22 $18 Machine hours to produce one unit 2 hours 1.5 hours Maximum Demand 500 units 400 units Pho Real has 980 machine hours available. Assuming that Pho Real undertakes the production plan that provides them with the maximum contribution margin, what will the contribution margin be? Do not round intermediary answers. Round your final answer to the nearest dollar. Do not use $ signs in your final answer

Answer 1

Solution :

Step 1 : Contribution Margin per Minute :

	Standard Bowl	Luxury Bowl
Contribution Margin per Unit	$ 22	$ 18
Machine Hour per Unit	2	1.5
Contribution per Hour	$ 11	$ 12

Step 2 : Optimum Prodution :

Pho Real will produce maximum of luxury bowl and in remaining hours standard bowl

Total Available Hours	980 Hours
Consumed in Production of Luxury Bowl (400 Units * 1.5 Hour)	600 Hours
Balane Hour after Production of Luxury Bowl	380 Hours
Units to be Produced of Standard Bowl (380 Hours / 2 Hours)	190 Units

Step 3 : Maximum Contribution :

	Standard Bowl	Luxury Bowl
Units Produced	190 Units	400 Units
Contribution Margin per Unit	$ 22	$ 18
Total Contribution	$ 4,180	$ 7,200

Maximum Contribution = $ 4,180 + $ 7,200 = 11,380.

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