Question

6.Logan Company can sell all of the standard and premier products they can produce, but it has limited production capacity. It can produce 6 standard units per hour or 4 premier units per hour, and it has 34,200 production hours available. Contribution margin per unit is $20 for the standard product and $28 for the premier product. What is the most profitable sales mix for Logan Company?

Answer 1

As the limitations factor is production hours therefore contribution margin per production hour will be calculated.

Standard product

Contribution margin = 20

6 units in one hours

Contribution margin per hour

= 20*6

= $120

Premier product

Contribution margin = 28

4 units in one hour

Contribution margin per hour

= 28*4

= $112

As the contribution margin per production hour is greater of standard product therefore maximum units of it should be produced if the demand of the product is available in the market.

Units will be Produced

= 34,200*6

=205,200 units.

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