Question

Mars Company manufactures and sells three products. Relevant per unit data concerning each product are given below:

		Product
		A		B		C
Selling price		$10		$13		$18
Variable costs and expenses		$5		$11		$15
Machine hours to produce		2		1		2

Compute the contribution margin per unit of limited resource (machine hours) for each product. (Round contribution margin per unit to 2 decimal places, e.g. 1.25.)

		Product A		Product B		Product C
Contribution margin per unit of limited resource		$		$		$

eTextbook and Media

  

  

Assuming 3,000 additional machine hours are available, which product should be manufactured?                                                                       Product AProduct BProduct C

eTextbook and Media

  

  

What is the total contribution margin if the hours are (1) divided equally amoung the products and (2) if they are allocated entirely to the product identified above.

			Total contribution margin
(1)	Divided equally amoung the products		$
(2)	Allocated entirely to the product identified above		$

Answer 1

Contribution margin per unit = Selling price - Variable costs

Product A = $10 - $5

= $5

Product B = $13 - $11

= $2

Product C = $18 - $15

= $3

Contribution margin per unit of limited resource = Contribution margin per unit / Machine hours

Product A = $5 / 2

= $2.50 per machine hour

Product B = $2 / 1

= $2.00 per machine hour

Product C = $3 / 2

= $1.50 per machine hour

2.

Product B should be manufactured because Contribution margin per unit of limited resouces is the highest.

3.

(1)

Product A = $2.50 * 1,000

= $2,500

Product B = $2.00 * 1,000

= $2,000

Product C = $1.50 * 1,000

= $1,500

(2)

Product B = $2.00 * 3,000

= $6,000