A company produces two products. Product A sells for $25, has variable costs of $15, and requires 2 machine hours to produce. Product B sells for $35, has variable costs of $20, and requires 5 machine hours to produce. 40,000 machine hours are available. The company can sell all it can make of either product. Which statement is true?

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A company produces two products. Product A sells for $25, has variable costs of $15, and requires 2 machine hours to produce. Product B sells for $35, has variable costs of $20, and requires 5 machine hours to produce. 40,000 machine hours are available. The company can sell all it can make of either product. Which statement is true?

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anthougo anthougo · Answer 1 · 2025-04-26T21:22:27-04:00

The true statement is A. The company should produce 8,000 units of Product A and 4,800 units of Products.

How is the product mix determined?

To determine the quantity of each product to produce, the company should first determine the contribution margin per unit.

Then, it should calculate the contribution margin per available or scare resource.

The product that yields the highest contribution margin of scarce resource should be produced first. The resource left after this can be allocated to the next product with the higher contribution margin per scare resource, unless there are other constraints.

Data and Calculations:

Product A Product B

Selling price per unit $25 $35

Variable costs per unit 15 20

Contribution margin per unit $10 $15

Machine hours required 2 5

Contribution per machine hour $5 $3

Available machine hours = 40,000

Production mix 8,000 4,800 units

Hours required for mix 16,000 24,000 (4,800 x 5 hours)

Thus, the true statement is Option A.

Learn more about contribution margin per scare resource at https://brainly.com/question/18566923

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Question Completion with Answer Options:

A. The company should produce 8,000 units of Product A and 4,800 units of Products

B. The company should produce 6,000 units of Product B and 5.000 units of Product A

C. The best sales mix cannot be determined from the information given.

D. The company should produce 4,000 units of Product A and 3,000 units of Product B.