Question

Duck Company makes three products (X, Y, & Z) with the following characteristics: Products X Y Z Selling price per unit $ 10 $ 15 $ 20 Variable cost per unit $ 6 $ 10 $ 10 Machine hours per unit 2 4 10 The company has a capacity of 2,000 machine hours, but there is virtually unlimited demand for each product. In order to maximize total contribution margin, how many units of each product should the company produce?

Multiple Choice 0 units of X, 0 units of Y, and 200 units of Z 1,000 units of X, 0 units of Y, and 0 units of Z 0 units of X, 500 units of Y, and 0 units of Z 2,000 units of X, 500 units of Y, and 200 units of Z

Answer 1

Answer -  1,000 units of X, 0 units of Y, and 0 units of Z

Explanation -

Contribution Margin of the Company:-

Particulars	X	Y	Z
Selling Price Per Unit	$10	$15	$20
Less : Variable Cost Per Unit	$6	$10	$10
Contribution Margin Per Unit	$4	$5	$10
Machine Hours Per Unit	2	4	10
Contribution Per Machine Hour	$2	$1.25	$1
Optimal	I	II	III

The company should focus on the product with the highest contribution margin per constrained resource unit. In this case, Produce Maximum Units of X as it has highest contribution margin per machine hour i.e $2 per machine hour and also company has a capacity of 2,000 machine hours.