Friday, October 26, 2018

Product K has a unit contribution margin of $120. Product L has a unit contribution margin of $100

Product K has a unit contribution margin of $120. Product L has a unit contribution margin of $100. Product K requires five furnace hours, while Product L requires four furnace hours. Determine the most profitable product, assuming the furnace is a constraint.

Answer:

Product K Product L 
Unit contribution margin……………………………………………… $120 $100 
÷ Furnace hours per unit………………………………………………   5   4 
Unit contribution margin per production bottleneck hour……… $  24 $  25 
Product L is the most profitable in using bottleneck resources. 

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