Assume a company makes only three products, B, C, and D: Product B Product C Product D
Estimated customer demand in units 700 600 800
Selling price per unit $ 80 $ 65 $ 45
Variable cost per unit $ 35 $ 26 $ 20
Machine-hours per unit 2.5 3.0 1.25
The company has only 2,700 machine-hours available. Up to how much should the company be willing to pay per hour to lease additional machine capacity?
a) $18
b) $20
c) $15
d) $13

d) $13

Explanation:

contribution margin per unit:

contribution margin per machine hour:

the company should first produce 800 units of product D and use 1,000 machine hours. Then it should produce 680 units of product B using 1,700 machine hours. In order to produce the remaining 20 units of product B and the 600 units of product C, the company must rent machine hours and the maximum possible price per hour is $13 (contribution margin per machine hour product C).

what

explanation:

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