Sherman Company Can Sell All of Its Products a and Z

question 8

Multiple Choice

Sherman Company can sell all of its products A and Z that it can produce, but it has limited production capacity. It can produce 6 units of A per hour or 10 units of Z per hour, and it has 20,000 production hours available. Contribution margin per unit is $12 for A and $10 for Z. What is the most profitable sales mix for this company?

• A) 84,000 units of A and 60,000 units of Z.
• B) 48,000 units of A and 80,000 units of Z.
• C) 60,000 units of A and 100,000 units of Z.
• D) 120,000 units of A and 0 units of Z.
• E) 0 units of A and 200,000 units of Z.

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Definitions:

Straight-Line Depreciation

A method of calculating depreciation by evenly spreading the cost of an asset over its useful life.

Net Present Value

The difference between the present value of cash inflows and outflows over a period, used in capital budgeting to assess the profitability of an investment.

Straight-Line Depreciation

Straight-line depreciation is a method that allocates an equal portion of an asset's cost to each year of its useful life for accounting and tax purposes.

Net Present Value

A calculation used to assess the profitability of an investment, considering the time value of money by discounting future cash flows.