Caddo Ltd Produces Two Products Using the Same Manufacturing Equipment

question 43

Multiple Choice

Caddo Ltd. produces two products using the same manufacturing equipment. Information about the two products is as follows: $$\begin{array} { l r r } & \text { Alpha } & \text { Beta } \\\text { Sales } & £ 15 & £ 35 \\\text { Variable costs } & £ 5 & £ 10 \\\text { Machine hours required } & 0.5 & 2.0 \\\text { Demand (units) } & 30,000 & 10,000 \\\text { Demand (machine hours) } & 15,000 & 20,000\end{array}$$ If Caddo can produce only one of the products in the next period, which product should be produced?

• A)Alpha should be produced because it requires less machine hours.
• B)Beta should be produced because it generates more revenue.
• C)Beta should be produced because it generates more contribution margin per unit.
• D)none of the above

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Definitions:

Standard Deviation

Standard deviation measures the amount of variation or dispersion from the average in a set of data points, indicating how spread out the numbers are.

Real Rate of Interest

The interest rate that has been adjusted to remove the effects of inflation; reflects the true cost of borrowing.

Nominal Rate

The rate of interest before adjustments for inflation, representing the face value rate agreed upon in financial instruments and agreements.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.