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:

Annuity Stream

A series of fixed payments made at equal intervals over a specified period of time.

IRR Rate

The Discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, used to assess the profitability of investments.

Time Value Of Money

The concept that money available in the present is worth more than the same amount in the future due to its earning capacity.

Initial Cash Outlay

The immediate amount of cash required to initiate a project, investment, or purchase.