Answer:
Omega Company
B) Product Y should be produced because it will produce greater total profit.
Explanation:
If only Product X is produced, the total profit it will produced is:
Selling price = $35
Variable Cost = $20
Contribution = $15
Total Contribution = $15 x 75,000/4 = $281,250
If only Product Y is produced, the total profit will be:
Selling price = $25
Variable cost = $15
Contribution = $10
Total Contribution = $10 x 75,000/2 = $375,000
Product Y therefore produces a greater total profit. This is because the fixed cost will remain the same if there are no avoidable elements.
Answer:
B) Product Y should be produced because it will produce greater total profits
Explanation:
The contribution margin per unit determines the contribution per unit for a given product. The contribution margin in limited resources is calculated by dividing contribution margin by per unit scarce resource. The product X contribution margin is $15 ($35 - $20) and product Y contribution margin is $10. Keeping the scarce resource if machine hours in view the contribution margin is
Product X = $15 / 4 machine hours = $3.75 per machine hour
Product Y = $10 / 2 machine hours = $5 per machine hour
The Omega Company should produce more of product Y because it uses less machine hours and is more profitable.
