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Question - Theory of constraints - Hera Inc. produces two products, A and B. On a per unit basis, selling price for A is 20 with direct material of 5, direct labor of 8, variable overhead costs of 3 and variable selling costs of 1. On the other hand, B's selling price is 30, direct material costs of 5, direct labor of 10, variable overhead costs of 5, and variable selling costs of 2. Additionally, machine hours per unit are 2hrs and 4hrs, respectively. Normally, Hera has a capacity to produce 2,000,000 units in any combination of the two products. However, due to some contingencies, Hera will be limited to 1,000,000 machine hours.
Which of the two products should be given priority to maximize contribution margin?
How much is the maximum contribution margin the company can generate?
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