The Garrison Company manufactures two products: Oxy Cleaner and Sonic Cleaner. The costs and revenues are...
The Garrison Company manufactures two products: Oxy Cleaner and
Sonic Cleaner. The costs and revenues are as follows:
| Oxy Cleaner | Sonic Cleaner | |||||
| Sales Price | $ | 80 | $ | 48 | ||
| Variable cost per unit | 30 | 20 | ||||
Total demand for Oxy is 10,700 units and for Sonic is 6,700 units.
Machine time is a scarce resource. During the year, 57,000 machine
hours are available. Oxy requires 5 machine hours per unit, while
Sonic requires 2.0 machine hours per unit.
What is the maximum contribution margin Garrison can achieve during
a year?
Homework Answers
| Oxy | sonic | |
| Sales | 80 | 48 |
| Less: variable cost | 30 | 20 |
| Contribution margin per unit | 50 | 28 |
| Machine hour per unit | 5 | 2 |
| Contribution margin per hour | $10 | $14 |
| Ranking | 2 | 1 |
Hour required for sonic = 6700*2 = 13400 hours
Hour available for oxy = 57000-13400 = 43600 hours
Production of Oxy = 43600/5 = 8720 units
Maximum contribution margin = 8720*50 + 6700*28
= $623600
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