Question

Sunland Company can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $82 and takes two machine hours to make and Fancy has a unit contribution margin of $99 and takes three machine hours to make. There are 2400 machine hours available to manufacture a product. What should Sunland do

Answer 1

Answer: Plain should be sold as it makes higher Contribution margin.

Step-by-step explanation:

Contribution Margin of Plain:

= Total hours constraint / Number of hours required for Plain * Contribution margin per unit

= 2,400 / 2 * 82

= $98,400

Contribution Margin of Fancy:

= 2,400 / 3 * 99

= $79,200

Plain makes more profit than Fancy and so should be the one sold.