A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $8 and takes two machine hours to make and Product B has a unit contribution margin of $18.0 and takes three machine hours to make. If there are 5000 machine hours available to manufacture a product, income will be:

Income = $30,000

Explanation

Whenever a company is faced with a limiting factor i. e a resource in short supply, the company should allocate the resource to the product with he highest contribution per unit of the scare resource

Product Cont/unit machine hr / unit cont/hr Ranking

A $8 2 hrs $4/hr 2nd

B $18 3 hrs $6/hr 1st

Hence the company should allocate the resource to the product B

Hence the total contribution

= 5000 hrs * $6 per hr.

= $30,000

Income = $30,000