Question

Logan Company can sell all of the standard and premier products they can produce, but it has limited production capacity. It can produce 6 standard units per hour or 4 premier units per hour, and it has 36,000 production hours available. Contribution margin per unit is $24 for the standard product and $30 for the premier product. What is the most profitable sales mix for Logan Company?

36,000 standard units and 120,000 premier units.

0 standard units and 144,000 premier units.

120,000 standard units and 64,000 premier units.

180,000 standard units and 24,000 premier units.

216,000 standard units and 0 premier units.

Answer 1

OPTION: 216,000 standard units and 0 premier units.

EXPLANATION:

for standard product,

Contribution margin per hour = 6 x $24 = $144

for premier product,

contribution margin per hour = 4 x $30 = $120

therefore, to maximise profit, logan company should employ all the production hours to produce only the standard product because it gives the greater contribution margin per hour.

therefore,

most profitable sales mix = 36000 hours x 6 units per hour of standard product

= 216,000 standard units and 0 premier units.