David Company produces two types of gears, Gear A and Gear B, with unit contribution margins of $6 and $8, respectively. Each gear must spend time on a special machine. The firm owns five machines that together provide 12,000 hours of machine time per year. Gear A requires 12 minutes of machine time; Gear B requires 24 minutes of machine time.
A. What is the contribution margin per hour of machine time for Gear A? Gear B?
B. If David faces only the production constraint (12,000 hours of machine time), how many units of Gear A should be produced? Gear B? What is the total contribution margin from this product mix?
C. Now suppose that David cannot sell more than 45,000 units of each type of gear. How many units of Gear A should be produced? Gear B? What is the total contribution margin from this product mix?