Question

A. C .Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below.

Small Medium Large

Unit selling price $430 $550 $1,230

Unit costs:

Variable manufacturing (200) (320) (700)

Fixed manufacturing (50) (140) (240)

Fixed selling and administrative (90) (25) (130)

Unit profit $90 $65 $160

Demand in units 170 130 170

Machine-hours per unit 70 40 170

The maximum machine-hours available are 6,200 per week.

How much is the maximum amount of total contribution margin possible to the firm in the short run?

A.

182,000

B.

52,000

C.

0

D.

31,720

Answer 1

	Correct answer is: D. 31,720
		Small	Medium	Large
	selling price	430	550	1230
Less:	Variable manufacturing	-200	-320	-700
(i)	Contribution margin	230	230	530
(ii)	Machine hours per unit	70	40	170
(i) / (ii)	Contribution margin per machine hour	$       3.26	$       5.75	$       3.12
(i)	Demand in units	170	130	170
(ii)	Machine hours per unit	70	40	170
(i) X (ii)	Machine hours required	11900	5200	28900
	Maximum machine hours available per week = 6,200
	Maximum amount of total contribution margin in short run:
	=	(5,200 X $5.75) + [(6,200 - 5,200) X $3.26]
	=	33160
		which is close to $31,720