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)

	Product A	Product B
Contribution Margin per Unit(A)	10	12
Machine Hours per Unit(B)	2	3
Contribution Margin per Machine Hour(A/B)	5	4

b)Since the contribution per machine hour is higher for A, Zhuang should manufacture and sell Product A

c)No. Of units that can be produced of A in 12,000 machine hours = 12000/2 = 6,000 units

d) No. Of Units that can be produced of B in 12,000 machine hours = 12000/3 = 4000 units

e) Total contribution margin that Zhuang LTD will generate making and selling the 1,500 units of Product B = 1500*12 = $18,000

f)Minimum Units of B = 1500

Machine Hours consumed = 1500*3 = 4500

Remaining Hours = 12000-4500 = 7500

Units of A that can be produced = 7500/2 = 3750

Total Contribution from A = 3750*10 = 37,500

From B = 1500*12 = 18,000

Maximum contribution margin = $55,500