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Moorehead Manufacturing Company produces two products for which the following data have been tabulated. Fixed manufacturing cost is applied at a rate of $1.00 per machine hour.
The sales manager has had a $160,000 increase in the budget allotment for advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company's customers. Suppose Moorehead has only 100,000 machine hours that can be made available to produce additional units of XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of this production capacity, which product should be advertised and what is the estimated increase in contribution margin earned?A. Product BD-4 should be produced, yielding a contribution margin of $250,000. B. Product XY-7 should be produced, yielding a contribution margin of $133,333. C. Product XY-7 should be produced, yielding a contribution margin of $75,000. D. Product BD-4 should be produced, yielding a contribution margin of $187,500. |