Polar Company Produces Two Types of Gears, Simple Gears and Deluxe

Essay

Polar Company produces two types of gears, Simple Gears and Deluxe Gears, with unit contribution margins of $2 and $5, respectively. Each gear must spend time on a special machine. The firm owns 10 machines that together provide 25,000 hours of machine time per year. Each Simple Gear requires 0.10 hours of machine time; each Deluxe Gear requires 0.4 hours of machine time.
Required:
A. Calculate the contribution margin per hour of machine time for Simple Gears.
Calculate the contribution margin per hour of machine time for Deluxe Gears.
B. If Polar faces only the production constraint (25,000 hours of machine time), how many units of Simple Gears should be produced? And how many units of Deluxe Gears? Calculate the total contribution margin from this product mix.
C. Now suppose that Polar cannot sell more than 200,000 units of each type of gear. How many units of Simple Gears should be produced? And how many units of Deluxe Gears? Caculate the total contribution margin from this product mix.