Question

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $18 and takes two machine hours to make and Product B has a unit contribution margin of $30.0 and takes three machine hours to make. If there are 5000 machine hours available to manufacture a product, income will be

$5000 less if Product A is made.

$5000 less if Product B is made.

$5000 more if Product A is made.

the same if either product is made.

Answer 1

	A	B
Contribution margin per unit	$18	$30
machine hour per unit	2	3
Contribution margin per machine hour	18/2 = $9	30/3 = $10
machine hour	5,000	5,000
Total contribution margin	5,000 x 9 = $45,000	5,000 x 10 = $50,000

Hence, contribution will be $5,000 less if product A is made.

First option iis the correct option

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