Question

Sparkle Products, a Christmas ornament manufacturer, operates at capacity. Constrained by machine time (200hrs/month), the company decides to drop the most unprofitable of its three product lines. The accounting department came up with the following data from last year’s operations:

	Red	Green	Blue
Machine Time per Unit	4.0 Hour	1.6 Hours	0.8 Hours
Selling Price per Unit	$75.00	$29.00	$18.00
Less Variable Costs per Unit	32.00	18.00	12.00
Contribution Margin	$38.00	$11.00	$6.00

Required:

Which line should Sparkle Products drop? Provide supporting calculations and include a brief write explaining to the team why (Hint: Use table to compute the contribution per machine hour because machine time is the constraint.)

Answer 1