Question

In Wesland Company, data concerning two products are: Contribution margin per unit - Product

A $10, Product B $12; machine hours required for one unit - Product A requires 2 hours, Product

B requires 3 hours.

6. Assuming that the only concern is adding as much to the bottom line (Net Income) as

possible, and given that machine hours is a limited resource, which product should

Wesland produce? Demand is not a factor in this question.

A) Product A

B) Product B

C) Both Product A & B equally.

D) Product C

Answer 1

In this case, the Machine hours are limited resource. So, Product with higher Contribution Per Machine Hour will provide maximum Income. So , company has to produce product with higher contribution margin per Machine Hr. Product A $10.00 Product B $12.00 Contribution Margin Per Unit Machine Hrs required Per Unit Contribution Per Machine Hr. ($10/2 for Product A; $12/3 for Product B $5.00 $4.00 Product A has higher Contribution Per Machine Hr. So Product A shall be produced. So Option A is Correct Answer.