Question:
Carolina Corporation manufactures and sells three different types of high quality sealed ball bearings. The bearings vary in terms of their quality specifications-primarily with respect to their smoothness and roundness. They are referred to as Fine, Extra-Fine, and Super-Fine bearings. Machine time is limited. More machine time is required to manufacture the Extra-Fine and Super-Fine bearings. Additional information is provided below.
|
Product
|
|
Fine
|
Extra-Fine
|
Super-Fine
|
|
Selling price
|
$6.00
|
$10.00
|
$16.00
|
|
Variable costs and expenses
|
4.00
|
6.50
|
11.00
|
|
Contribution margin
|
$2.00
|
$ 3.50
|
$ 5.00
|
|
Machine hours required
|
0.02
|
0.04
|
0.08
|
(a) Ignoring the machine time constraint, what strategy would appear optimal?
(b) What is the contribution margin per unit of limited resource for each type of bearing?
(c) If additional machine time could be obtained, how should the additional capacity be used?