Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 44

Product Mix Decision, Single Constraint
Norton Company produces two products (Juno and Hera) that use the same material input. Juno uses two pounds of the material for every unit produced, and Hera uses five pounds. Currently, Norton has 16,000 pounds of the material in inventory. All of the material is imported. For the coming year, Norton plans to import an additional 8,000 pounds to produce 2,000 units of Juno and 4,000 units of Hera. The unit contribution margin is $30 for Juno and $60 for Hera. Also, assume that Norton's marketing department estimates that the company can sell a maximum of 2,000 units of Juno and 4,000 units of Hera.
Norton has received word that the source of the material has been shut down by embargo. Consequently, the company will not be able to import the 8,000 pounds it planned to use in the coming year's production. There is no other source of the material.
Required:
1. Compute the total contribution margin that the company would earn if it could manufacture 2,000 units of Juno and 4,000 units of Hera.
2. Determine the optimal usage of the company's inventory of 16,000 pounds of the material. Compute the total contribution margin for the product mix that you recommend.