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    Skill Craft Appliance-Optimum Output

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    The Skill Craft Appliance Company has two products: a plain mixer and a fancy mixer. The plain mixer sells for 464 and has a variable cost of $48. The fancy mixer sells for $100 and has a variable cost of $70.
    1. compute contribution margins and contribution-margin ratios for plain and fancy mixers.
    2. The demand is for more units than the company can produce. There are only 20,000 machine-hours of manufacturing capacity available. Two plain mixers can be produced in the same average time (1 hour) needed to produce one fancy mixer. Compute the total contribution margin for 20,000 hours for plain mixers only an for fancy mixers only.
    3. Use two or three sentences to state the major lesson of this problem.

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    Solution Preview

    1. The contribution margin is the gross profit made on a sale. The contribution margin ratio is the percentage of the sale price that is profit. So, if the plain mixer sales for $64 and has variable costs of $48, then the contribution margin is $64-$48=$16. The contribution margin ratio is $16/$64=25%

    The contribution margin for the ...

    Solution Summary

    The solution calculates contribution margins of two products and outlines how to arrive at optimum output based upon this information.