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Constrained resource

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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 1,000 machine hours available to manufacture a product, what will the income be?

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Solution Summary

The solution provides a step-by-step explanation on a production decision when there is a constrained resource. The solution discovers which product, Product A vs. Product B, would generate a higher income for the company.

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When there is a constrained resource, we calculate the contribution margin per unit of constrained resource and produce those items which have the higher contribution margin per unit of constrained ...

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