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28 September, 14:20

Knowledge Check 01 Product A Product B Selling price per unit$20 $15 Variable cost per unit 12 9 Contribution margin per unit$8 $6 Labor time4 minutes 2 Minutes Roberto, Inc. manufactures products A and B. Both products have a contribution margin ratio of 40%. Assume that labor time is the constrained resource and only a total of 3,000 minutes is available. Product A has a total demand of 500 units and product B has a total demand for 600 units. Considering the constraint, how many units of product B should be produced to maximize profits

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  1. 28 September, 17:29
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    600 units

    Explanation:

    Determine the Contribution per limiting factor for the 2 products

    Product A

    Contribution per limiting factor = Contribution per unit / Amount of Limiting Factor required per unit

    = $8 / 4

    = $ 2

    Product B

    Contribution per limiting factor = Contribution per unit / Amount of Limiting Factor required per unit

    = $6 / 2

    = $ 3

    From the Contribution per limiting factor for the 2 products it can be seen that Product B has the highest Contribution per limiting factor and should be manufactured first follows by Product A.

    Thus total demand of 600 units will be satisfied.
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