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Question & Answer: Zeke Co. manufactures two products that both require labor and machining.There is unlimited deman…..

Zeke Co. manufactures two products that both require labor and machining.There is unlimited demand for these products.

Unit sales and cost data and processing requirements follow:

Product A Product B
Selling Price $75 $200
Variable costs $25 $80
Machine hours required 0.4 1.2
Labor hours required 2 6
The company is limited to 160,000 machine hours and 120,000 labor hours. Fixed costs are $1,000,000

What is the most profitable mix of products to produce? Explain your answer

Expert Answer

 

answer:

Product A Product B
Selling Price 75 200
Variable Cost 25 80
Contribution Margin Per Unit 50 120
Contribution Margin Per m/h 125 100
Contribution Margin Per l/h 25 20

As Product A has the higher contribution margin thus higher incremental profit.

Fixed costs are not been included here are they are short term

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