Product a Requires 5 Machine Hours Per Unit to Be

question 13

Multiple Choice

Product A requires 5 machine hours per unit to be produced, Product B requires only 3 machine hours per unit, and the company's productive capacity is limited to 240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units of either product as it produces, the company should:

• A) Produce only Product A
• B) Produce only Product B.
• C) Produce equal amounts of A and B.
• D) Produce A and B in the ratio of 62.5% A to 37.5% B.
• E) Produce A and B in the ratio of 40% A and 60% B.

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Definitions:

Fixed Costs

Definition: Business expenses that remain the same regardless of the level of production or sales.

Break-Even Point

The moment when the sum of all expenses matches the sum of all income, resulting in neither a profit nor a loss.

Revenue

The total income generated from the sale of goods or services related to a company's primary operations.

Break-Even Point

The stage at which total costs and total revenues are exactly equal, meaning no profit nor loss is being made, having no net effect on the financial position.