Courcy Manufacturing Company produces two industrial solvents for which the following data have been tabulated. Fixed manufacturing cost is applied to products at a rate of $1.00 per machine hour.

The sales manager has had a $215,000 increase in her budget allotment for advertising and wants to apply the money on the most profitable product. The solvents are not substitutes for one another in the eyes of the company’s customers.

1. How many machine hours does it take to produce one XY-7? To produce one BD-4? (Hint: Focus on applied fixed manufacturing cost.)

2. Suppose Courcy has only 140,000 machine hours that can be made available to produce XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of these production capabilities, which product should be produced and advertised, and what is the estimated increase in contribution margin earned?

Transcribed Image Text:

Per Unit Selling price Variable manufacturing costs Fixed manufacturing cost Variable selling cost XY-7 56.45 2.70 70 1.80 BD-4 $4.20 1.70 .20 1.75