Figure 20-4 Montgomery Company Produces a and B with Contribution

question 49

Multiple Choice

Figure 20-4 Montgomery Company produces A and B with contribution margins per unit of $40 and $30, respectively. Only 500 labor hours and 300 machine hours are available for production.
Time requirements to produce one unit of A and B are as follows:
Refer to Figure 20-4. What is the constraint on machine hours for Montgomery Company?

• A) 2A + 5B £ 500
• B) 2A + 5B £ 300
• C) 6A + 3B £ 500
• D) 40A + 30B £ 500

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Definitions:

Price Ceiling

A legal maximum price that can be charged for a product or service, intended to protect consumers from high prices.

Consumer Surplus

The discrepancy between what consumers are ready and capable of spending for a good or service, as shown by the demand curve, and the actual amount paid by them, known as the market price.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, due to market prices.

Total Surplus

The aggregate benefit to society, constituted by the addition of consumer and producer surplus, derived from the creation and utilization of goods and services.