A company sells two products with information as follows:

A B

Sales price per unit $15 $21

Variable cost per unit $4 $13

Products are made by machine. Four units of product A can be made with three machine hours and five units of product B can be made with 0.7 machine hour.

1. If there are no constraints on production or sales of either product, then the company should emphasize sales of product B.

O True O False

True.

Explanation:

The Contribution margin i. e Sale price less Variable Cost per unit for product A is (15-4) is $11 & for product B is (21-13) is $8. for making 4 units of product A we need three machine hours, so if we divide units by machine hours only 0.9 unit of A can be made in an hour while we can made 5 units in 0.7 hours pf product B, so if we divide 5 by 0.7, approximately 7 unit of B can me made in an hour.

Thus, in the production of 1 hour we can make $10 from product A while we can make $ 57 from product B.

Product A Product B

S. P $15.00 $21.00

V. C $4.00 $13.00

Contribution Margin Per unit $11.00 $8.00

Units Produce Per hour Production 0.9 7

CM Per hour $10.27 $57.14