Answer (B) is correct . The unit contribution margins of Products X and Y respectively are $20 and $30 ($100 – $80 vs.?$130 – $100). With 1,000 lbs.?of raw materials, Eagle Brand can produce either 250 units of X (1,000 ÷ 4) or 100 units of Y (1,000 ÷ 10). The higher total contribution margin will be attained by producing Product X (250 × $20 = $5,000 vs.?100 × $30 = $3,000). The key is to determine the contribution margin per unit of scarce resource. The $20 margin on Product X requires the use of 4 lbs.?of the scarce resource, or a return of $5 per pound ($20 ÷ 4 lbs.). Product Y has a higher margin of $30, but requires 10 lbs.?of the scarce resource. Thus, Product Y has a margin of only $3 per pound of the scarce resource. The objective is to maximize the margin per pound of scarce resource.
Answer (A) is incorrect because The amount of 100 units of Product Y does not generate the highest possible contribution margin.
Answer (C) is incorrect because The amount of 200 units of product X and 20 units of product Y does not generate the highest possible contribution margin.
Answer (D) is incorrect because The amount of 200 units of product X and 50 units of product Y does not generate the highest possible contribution margin.
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Eagle Brand has 1,000 lbs.?of raw materials that can be used to produce Products X and Y. Which one of the alternatives below should Eagle Brand accept in order to maximize contribution margin?