A. This is the maximum contribution margin that could be generated from the quantity of each product that is demanded. However, the quantity that Cervine can produce is limited by the number of productive machine hours that the company has available. Therefore, not all of the units demanded can be manufactured.
B. This answer results from giving priority in manufacturing to Product B. However, Product B's unit contribution per machine hour is only $16, whereas Product A's unit contribution per machine hour is $18.50. Therefore, all of the units demanded of Product A should be manufactured, and any remaining machine hours should be used to manufacture as much of Product B as possible.
C. This is the sum of the total demand for Product A multiplied by Product B's unit contribution margin, and the total demand for Product B multiplied by Product A's unit contribution margin. In addition to the fact that the unit contribution margins are reversed, the quantity that Cervine can produce is limited by the number of productive machine hours that the company has available. Therefore, not all of the units demanded can be manufactured.
D. The first step is to determine which product generates the highest contribution per unit of the constrained resource, which is machine hours, because that will determine which product should receive priority in manufacturing. Product A's unit contribution margin is $37 ($100 - $53 - $10), and it requires 2.0 machine hours per unit. Therefore, its unit contribution margin per machine hour is $37 ÷ 2, or $18.50. Product B's unit contribution margin is $24 ($80 - $45 - $11), and it requires 1.5 machine hours per unit. Therefore, its unit contribution margin per machine hour is $24 ÷ 1.5, or $16.Since Product A's contribution margin per machine hour is higher than Product B's, priority in manufacturing should be given to Product A. All 10,000 units demanded of Product A will be manufactured. That will require 10,000 × 2 machine hours, or 20,000 machine hours. Since 40,000 productive machine hours are available, 20,000 (40,000 - 20,000) remaining machine hours will be available for Product B. Since Product B requires 1.5 machine hours per unit, 13,333 (20,000 ÷ 1.5) units of Product B can be manufactured. From the units that can be manufactured with the existing machine hours available, the maximum contribution margin that Cervine can generate in the coming year is (10,000 × $37) + (13,333 × $24), which equals $689,992.
