A Company Makes Two Products

question 146

Multiple Choice

A company makes two products.The company can sell all of either product it can make.The relevant data for these two products follows:

Total fixed overhead is $250,000.The company has 100,000 machine hours available for production.The company should select which product to maximize operating profits?

• A)Product A because it uses less machine time.
• B)Product A because its contribution margin per machine hour is $5.00.
• C)Product B because its contribution margin per unit is $10.
• D)Product B because its contribution margin per machine hour is $6.67.

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Definitions:

Bowed Out

A phrase indicating withdrawal or retreat from a competition, situation, or commitment.

Increasing Opportunity Costs

The economic concept that as production of a good increases, the opportunity cost of producing an additional unit of that good also increases.

Production Possibilities Schedule

A graphical representation that shows the different combinations of two goods or services that can be produced within a given time period, provided that available resources and technology are static.

Consumer Goods

Goods that are produced for direct consumption by the end user.