Question

Mars Company manufactures and sells three products. Relevant per unit data concerning each product are given below: Product A B C Selling price $ 8 $ 12 $ 16 Variable costs and expenses $ 5 $ 10 $ 13 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.) Assuming 3,000 additional machine hours are available, which product should be manufactured? 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 machine hour :

	Product A	Product B	Product C
Selling price	8	12	16
Variable cost	5	10	13
Contribution margin per unit	3	2	3
Machine hour per unit	2	1	2
Contribution margin per machine hour	1.50	2	1.50

Product B should be manufacturred :

total contribution margin if the hours are (1) divided equally amoung the products

Total COntribution margin = (1000*1.5+1000*2+1000*1.5) = 5000

(2) if they are allocated entirely to the product identified above = 3000*2 = 6000