Reference no: EM133040265
Question - Sealing Company manufactures three types of external drive storage units. Each of the three types requires the use of a special machine that has a total operating capacity of 15,000 hours per year. Information on the three types of storage units is as follows:
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Basic
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Standard
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Deluxe
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Selling price
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$9.00
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$30.00
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$35.00
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Variable cost
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$6.00
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$20.00
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$10.00
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Machine hours required
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0.10
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0.50
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0.75
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Sealing Company's marketing director has assessed demand for the three types of storage units and believes that the firm can sell as many units as it can produce.
Required -
(1) Calculate the contribution margin per MH for each of the storage unit.
(2) Based on your answer in requirement (1), how many of each type of storage unit should be produced and sold to maximize the company's contribution margin?
(3) Based on your answer in requirement (2), what is the total contribution margin?
(4) Now, suppose that Sealing Company believes that it can sell no more than 12,000 of the deluxe model but up to 50,000 each of the basic and standard models at the selling prices estimated.
(i) What product mix would you recommend (that is how many units of each storage unit will be produced) [Hint: Use your answers in requirement (1) to decide on the mix].
(ii) Calculate the total contribution margin based on your answer in requirement (4) (i).