Limited-Resource Decision
Kerrie Velinsky Productions produces music videos in two lengths on separate compact discs. The company can sell its entire production of either product. The relevant data for these two products follow:
Total fixed overhead is $240,000. The company has only 100,000 machine hours available for production. Because of the constraint on the maximum number of machine hours, Kerrie must decide which CD to produce to maximize the company's income.
Required:
Compute the contribution margin per machine hour for each compact disk. Round to the nearest cent.
Compact disk 1: $ per machine hour
Compact disk 2: $ per machine hour
Which product should the company select to maximize operating profits?