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20 June, 23:34

The contribution margin per unit is $10 for product X and $15 for product Y. It takes 2.5 hours to produce each unit of Product X and 3 hours to produce each unit of product Y. Fargo has maximun production capacity of 25,000 machine hours and the demand for products X and Y is a maximum of 5,000 units each. How many units of product X and units of Product Y should be produced?

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  1. 21 June, 03:02
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    X = 4,000 units

    Y = 5,000 units

    Step-by-step explanation:

    The production of X gives $ 10 / 2.5 = $ 4 per hour.

    The production of Y gives $ 15 / 3 = $ 5 per hour.

    Therefore the production of Y gives a better contribution margin per hour and you should produce the maximum units of Y before producing X.

    Time needed to produce 5,000 units of Y:

    t = 5,000 * 3 = 15,000 hours.

    The total capacity in machine hours is 25,000, the time available to produce X is:

    25,000 - 15,000 = 10,000 hours.

    And the units of X produced in 10,000 hours is:

    units of X = 10,000 / 2.5 = 4,000 units.
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