Coconut Plantations Pty Ltd manufactures three coconut-based products, candles, soaps and detergents. On average 75,000 candles, 50,000 soaps and 125,000 detergents are sold. Next year, the company has a restricted advertising budget of $40,000, which is sufficient to effectively promote only one of its products. The marketing department estimates that average sales of candles will increase by 25 percent if they are advertised, while soaps average sales will increase by 20 percent and detergents will increase by 10 percent if they are advertised. The following data is provided.

Required
a. Calculate the contribution margin for each product.
b. Calculate the contribution margin per machine hour for each product.
c. Assuming unlimited machine hours are available, which product should be promoted in the advertising campaign?
d. Would your answer to (c) change if now there were 300 000 machine hours available for production?
e. Prepare a statement of profit or loss after you have made your decisions in (c) and (d).
f. Discuss when to use the contribution margins calculated in your answers to (a) and (b) above.

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Selling price per unit Variable cost per unit Machine hours per unit Fixed costs are estimated to be $600 000. Candles $25 $15 1 hour Soaps $38 $22 3 hours Detergents $20 $12 1 hour