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14 August, 13:05

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 5,000 machine hours available to manufacture a product, income will be:

a. $10,000 more if Product A is made.

b. $10,000 less if Product B is made.

c. $10,000 less if Product A is made.

d. the same if either product is made.

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  1. 14 August, 13:12
    0
    Product B has a net income of $10,000 superior to Product A.

    The correct answer is C.

    Explanation:

    Giving the following information:

    Product A:

    Unitary contribution margin = $16

    Machine-hours required = 2

    Product B:

    Unitary contribution margin = $30

    Machine-hours required = 3

    First, we will calculate the total income of both products.

    Product A = 16 * (5,000/2) = $40,000

    Product B = 30 * (5,000/3) = $50,000

    Product B has a net income of $10,000 superior to Product A.
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