Question

SuperToys has 4,000 production hours available for January for three of its products: Regular boat, Deluxe boat, Super-deluxe boat. The rate of production (i.e. how many units can be produced per hour), the market demand, selling price and cost data for the three products are provided in the following table:
	Regular boat	Deluxe boat	Super-Deluxe boat
Demand for January (in units)	100,000	78,000	30,000
Unit selling price	$40	$70	$90
Unit variable cost	$20	$45	$40
Unit Contribution Margin	$20	$25	$50
Rate of production (units of production per hour)	50	40	25
With the available production hours, SuperToys can't fill the entire market demand. Which product should be given top priority in production schedule for January?

	A.	Deluxe boat
	B.	Both regular and Super-deluxe boats should be given equal top priority
	C.	Super-Deluxe boat
	D.	All three products should be given equal priority
	E.	Regular boat

Answer 1

Answer: E. Regular boat

Explanation:

	Regular boat	Deluxe boat	Super-Deluxe boat
Demand for January (in units)	100,000	78,000	30,000
x Unit selling price	$40	$70	$90
Total Sales (A)	$4,000,000	$5,460,000	$2,700,000
Demand for January (in units)	100,000	78,000	30,000
x Unit variable cost	$20	$45	$40
Total Variable Cost (B)	$2,000,000	$3,510,000	$1,200,000
Contribution margin (A-B)	$2,000,000	$1,950,000	$1,500,000

.

Regular boat product should be given top priority in production schedule for January since it has higher contribution margin