Question

Speedy Car Manufacturers can produce two different luxury cars using the same amount of machine hours, and both cars have the same amount of fixed costs. However, the company is constrained by the amount of machine hours and can only produce one car. How should Speedy Car Manufacturers determine which luxury car to produce?

Question 6 options:

	Determine which car has the lowest contribution margin per unit of the constraint
	Determine which car has the highest contribution margin per unit of the constraint
	Determine which car has the lowest amount of variable costs per unit
	Determine which car has the highest sales price per unit

Answer 1

(b) Determine which car has the highest contribution margin per unit of constraint.

Reason.

This option is correct considering there are other variable costs also, if one machine hours is the only variable cost factor, then answer would be (d) that is determine which car has the highest sales price per unit.

But we are assuming there are other variables costs also.

In this case company should calculate the contribution margin from both the cars. Then it should determine contribution margin per hour of machine to see where it is more