Polar Company Produces Two Types of Gears,Simple Gears and Deluxe

question 22

Essay

Polar Company produces two types of gears,Simple Gears and Deluxe Gears,with unit contribution margins of $2 and $5,respectively.Each gear must spend time on a special machine.The firm owns 10 machines that together provide 25,000 hours of machine time per year.Each Simple Gear requires 0.10 hours of machine time; each Deluxe Gear requires 0.4 hours of machine time.
A. What is the contribution margin per hour of machine time for each Simple Gear? And for each Deluxe Gear?
B. If Polar faces only the production constraint (25,000 hours of machine time), how many units of Simple Gears should be produced? And how many units of Deluxe Gears? What is the total contribution margin from this product mix?
C. Now suppose that Polar cannot sell more than 200,000 units of each type of gear. How many units of Simple Gears should be produced? And how many units of Deluxe Gears? What is the total contribution margin from this product mix?

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Definitions:

Overhead Costs

Expenses related to the day-to-day running of a business that can't be directly linked to any specific product or service.

Directly Related

Having a direct connection or relevance to another factor, typically implying a cause-and-effect relationship or close association.

Direct Materials

Raw materials that can be directly attributed to the production process of a specific product.

Direct Labor

The cost associated with the work of employees directly involved in the production of goods or services.