Question

In Zhuang LTD , data concerning two products are Contribution margin per unit—Product A $10, Product B $12; machine hours required for one unit—Product A 2, Product B 3.

a) Calculate the contribution margin per unit of the limited resource for each product:

Product A: $ Answer per hour

Product B: $ Answer per hour

b) If Zhuang LTD has a limited number of machine hours and can sell all the units produced of either product, which product should it produce, Product A or Product B?

Zhuang LTD has a maximum of 12,000 machine hours available for production of Products A and B.

c) How many units of product A can the company produce in the 12,000 machine hours?

Answer units

d) How many units of product B can the company produce in the 12,000 machine hours?

Answer units

Zhuang LTD must produce a minimum of 1,500 units of Product B but may use any remaining machine hours to produce and sell either Product A or Product B or any combination of the two products.

e) What is the total contribution margin that Zhuang LTD will generate making and selling the 1,500 units of Product B?

$ Answer

f) Given that they must make at least 1,500 units of Product B, what is the maximum contribution margin that Zhuang LTD can generate with 12,000 machine hours?

$ Answer

Answer 1

a

Contribution margin per unit of the limited resource:

Product A = 10/2 = $5 per hour

Product B = 12/3 = $4 per hour

b

Product A should be produced as it has greater contribution margin per unit of the limited resource

c

Units of product A = 12000/2 = 6000 units

d

Units of Product B = 12000/3 = 4000 units

e

Total contribution margin from 1,500 units of Product B = 1500*12 = $18000

f

Remaining machine hours = 12000-(1500*3)= 7500

Units of product A to be produced = 7500/2=3750

Maximum contribution margin = 18000+(3750*10)= $55500