A company produces two products, Gamma and Omega. Gamma sells for $10 per unit and Omega sells for $12.50 per unit. Variable costs are $7 per unit of Gamma and $8 per unit of Omega. The company has a capacity of 5,000 machine hours per month. Gamma uses 1 machine hour per unit and Omega uses 3 machine hours per unit. 1. Compute the contribution margin per machine hour for each product. 2. Assume demand for Gamma is limited to 3,800 units per month. How many units of Gamma and Omega should the company produce, and what will be the total contribution margin from this sales mix?
A company produces two products, Gamma and Omega. Gamma sells for $10 per unit and Omega sells for $12.50 per unit. Variable costs are $7 per unit of Gamma and $8 per unit of Omega. The company has a capacity of 5,000 machine hours per month. Gamma uses 1 machine hour per unit and Omega uses 3 machine hours per unit. 1. Compute the contribution margin per machine hour for each product. 2. Assume demand for Gamma is limited to 3,800 units per month. How many units of Gamma and Omega should the company produce, and what will be the total contribution margin from this sales mix?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A company produces two products, Gamma and Omega. Gamma sells for $10 per unit and Omega sells
for $12.50 per unit. Variable costs are $7 per unit of Gamma and $8 per unit of Omega. The company has
a capacity of 5,000 machine hours per month. Gamma uses 1 machine hour per unit and Omega uses 3
machine hours per unit.
1. Compute the contribution margin per machine hour for each product.
2. Assume demand for Gamma is limited to 3,800 units per month. How many units of Gamma and Omega
should the company produce, and what will be the total contribution margin from this sales mix?
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