Question

The contribution margin per unit is $10 for product X and $15 for product Y. It takes 2.5 hours to produce each unit of Product X and 3 hours to produce each unit of product Y. Fargo has maximun production capacity of 25,000 machine hours and the demand for products X and Y is a maximum of 5,000 units each. How many units of product X and units of Product Y should be produced?

Answer 1

Contribution margin per unit of Product X - S10 Contribution margin per unit of Product Y- S15 Maximum demand for each product5,000 units Since product Y has high contribution margin, it is better to produce maximum units of product Y Machine hours per unit : Product X 2.5 Hours ; Product Y = 3 Hours Total machine hours available for company 25,000 Hours Number ofproduced product Y 5,000 units Number of machine hours used for product Y 5,000 units 3 Hrs per unit15,000 Hrs Remaining machine hours available for product X- 25,000 Hrs 15,000 Hrs10,000 Hrs Number of units produced Product X = Hours available for product X Machine hours required per unit - 10,000 Hrs 2.5 Hrs per unit = 4,000 units Number of units produced Product X : 4,000 units Product Y : 5,000 units