Question

Orange manufactures two types of smartphone:

                        Selling Price    Variable Cost

LF120             $400                $280

LE200             $450                $300

1 unit LF120 production requires 2 machine hours, 1 unit of LE200 requires 3 machine hours. The company’s production capacity is 12 hours daily, 20 days a month. . Demand for LF120 is 100 units monthly and for LE200 is 80 units.

Which product has the highest contribution margin per unit?

Which product has the highest contribution margin per machine hour?

What should be the best sales mix?

How much is the total contribution margin?

Answer 1

	LF120	LE200
Selling price	400	450
(-) Variable cost	280	300
Contribution margin per unit	120	150
(/) Machine hours per unit	2	3
Contribution margin per machine hour	60	50

Which product has the highest contribution margin per unit	LE200
Which product has the highest contribution margin per machine hour	LF120

Hours available per month = 12 * 20	240
As the contribution margin per machine hour of LF120 is high, the company should produce this product first to fully satisfy the demand
Hours required for LF120 = 100 * 2	200
Units of LE200 that can be produced = ( 240 - 200 ) / 3	13
What should be the best sales mix	LF120 : 100 units and LE200 : 13 units

How much is the total contribution margin = (200*120) + (13*150)

25950