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Behar Company makes three types of stainless steel frying pans. Each of the three types of pans requires the use of a special machine that has total operating capacity of 182,000 hours per year. Information on each of the three products is as follows: The marketing manager has determined that the company can sell all that it can produce of each of the three products. Required: 1. How many of each product should be sold to maximize the total contribution margin? What is the total contribution margin for this product mix? 2. Suppose that Behar can sell no more than 300,000 units of each type at the prices indicated. What product mix would you recommend, and what would be the total contribution margin?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 20, Problem 16E
Textbook Problem
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Behar Company makes three types of stainless steel frying pans. Each of the three types of pans requires the use of a special machine that has total operating capacity of 182,000 hours per year. Information on each of the three products is as follows:

Chapter 20, Problem 16E, Behar Company makes three types of stainless steel frying pans. Each of the three types of pans

The marketing manager has determined that the company can sell all that it can produce of each of the three products.

Required:

  1. 1. How many of each product should be sold to maximize the total contribution margin? What is the total contribution margin for this product mix?
  2. 2. Suppose that Behar can sell no more than 300,000 units of each type at the prices indicated. What product mix would you recommend, and what would be the total contribution margin?

1.

To determine

Ascertain the number of each product that should be sold to maximize the total contribution margin and compute the total contribution margin for the given product mix.

Explanation of Solution

Contribution margin: Contribution margin is a measurement of performance where only revenue and variable costs are taken into consideration. Hence, this measurement is useful in the evaluation of the probable outcomes of decisions including pricing decisions and other marketing strategies that affect primarily revenue and variable costs.

Ascertain the number of each product that should be sold to maximize the total contribution margin:

ParticularsBasicStandardDeluxe
Price $12.00$17.00$32.00
Less: variable cost7.0011.0012.00
Contribution margin (a)$5.00$6.00$20.00
Machine hours (b)0.100.200.50
Contribution margin per machine hour (a×b)$50

2.

To determine

State the product mix that is recommendable, and compute the total contribution margin for the product mix.

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Chapter 20 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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