Question

Question 39) Guru Co. produces two products. Both products pass through a firing process that is operating at full capacity and is a production bottleneck. Product A requires 2 hours of processing and has a contribution margin per unit of $60. Product B requires 1 hour of processing and has a contribution margin of $40. Which of the following provides the most accurate assessment of the situation assuming unlimited demand for each product?

A)Production of Product B rather than Product A will generate the maximum profitability for Guru

B)Production of Product A rather than Product B will generate the maximum profitability for Guru

c)Raising the selling price of Product B by $20 will cause management to be indifferent between producing Product A or Product B

D)Raising the selling price of Product A by $10 will cause management to be indifferent betuween producing Product A or Product B

Answer 1

Answer --A)Production of Product B rather than Product A will generate the maximum profitability for Guru

Product	A	B
Production Hours	2	1
Contribution Margin	60 $	40 $
Contribution Perhours	30 $	40 $
Selling price increase by 10 $ For Product A
Product	A	B
Production Hours	2	1
Contribution Margin	70 $	40 $
Contribution Perhours	35 $	40 $
Since contribution Perhour From Product B is greater than Product A after increase in selling for 10$, It is recommendable to produce Product B