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Managerial Accounting

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Product Mix Decision Capacity Constraing

MGRACT-4ZJ2BC

Capacity constraints, product mix
Bailey Company produces two kinds of paper shredders, Cross Cut that cuts up to three sheets of paper at a time and Micro Cut that cuts up to 15 sheets of paper at a time in the smallest size cut The selling prices, costs and contribution margins are as follows

Cross Cut Micro Cut
Sales Price per Shredder \$80 \$100
Variable Cost per Shredder \$50 \$60
Contribution Margin per Shredder \$30 \$40
Machine Hours required per Shredder 1 2

The capacity constraint is that only 300 machine hours are available daily for producing shredders at a total fixed cost of $6,000 daily. Assume that demand is high for both products, thus all units produced can be sold.

What relevant factors should be considered in maximizing operating income?

A

Variable costs and fixed costs per unit.

B

Variable costs per unit only.

C

Contribution margin per hour.

D

Contribution margin per unit.