Question

Sweet Taste has the capacity to produce either 45,000 corncob pipes or 21,000 cornhusk dolls per year. The pipes cost $3.00 each to produce and sell for $7.50 each. The dolls sell for $10.00 each and cost $4.00 to produce. Required Calculate the contribution margin per unit and the total contribution margin for Pipes and Dolls. Assuming that Sweet Taste can sell all it produces of either product, should it produce the corncob pipes or the cornhusk dolls? (Round "Contribution margin per unit" answers to 2 decimal places.)

Answer 1

Contribution margin statement of sweet taste

Particulars P	Pipes	dolls
Sale price per unit	7.50	10.00
Cost to produce	3.00	4.00
Contribution margin per unit	4.50	6.00
Production in Units	45000	21000
Total contribution	$202,500	126,000

Decision

Sweet taste should produce corncob pipes as it gives more contribution.