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20 November, 02:05

Bricktan Inc. makes three products, basic, classic, and deluxe. The maximum Bricktan can sell is 130,000 units of basic, 508,000 units of classic, and 230,000 units of deluxe. Bricktan has limited production capacity of 134,000 hours. It can produce 10 units of basic, 8 units of classic, and 4 units of deluxe per hour. Contribution margin per unit is $15 for the basic, $25 for the classic, and $55 for the deluxe. What is the total contribution margin if Bricktan chooses the most profitable sales mix?

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  1. 20 November, 03:02
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    the total contribution margin if Bricktan chooses the most profitable sales mix is $27,000,000

    Explanation:

    It is important to note that the limiting factor identified is the production hours.

    Step 1 Calculate Contribution per limiting factor of each product

    Basic

    1 unit requires 0.1 hours

    Contribution per limiting factor = Contribution per unit / Quantity of limiting factor per unit

    = $15/0.10

    = $150

    Classic

    1 unit requires 0.125 hours

    Contribution per limiting factor = Contribution per unit / Quantity of limiting factor per unit

    = $25/0.125

    = $200

    Deluxe

    1 unit requires 0.25 hours

    Contribution per limiting factor = Contribution per unit / Quantity of limiting factor per unit

    = $55/0.25

    = $220

    Step 2 Rank the products

    1st = Deluxe

    2nd = Classic

    3rd = Basic

    Step 3 Determine the production mix

    Product Total hours demanded Balance

    Capacity 134,000

    Deluxe (230,000*0.25) = 57,500 76,500

    Classic (508,000*0.125) = 63,500 13,000

    Basic (130,000*0.1) = 13,000 0

    Step 4 Calculate total contribution

    Deluxe (230,000*$55) = 12,650,000

    Classic (508,000*$25) = 12,700,000

    Basic (130,000*$15) = 1,650,000

    Total = 27,000,000
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