Question

Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true?
X Y
Sales price: $48 $44
Variable cost : 38 28
Time needed to process: 5 hours 8 hours

a. Neither X nor Y is profitable.
b. X is more profitable than Y.
c. Y is more profitable than X.
d. X and Y are equally profitable.

Answer 1

Answer:

b. X is more profitable than Y

Explanation:

Phone X we have the following data

Sales price = $48

Less: Variable cost = $38

Contribution per unit = $10

Hours required for each unit = 5

Hourly contribution = $10/5 = $2 per hour

Phone Y we have the following data

Sales price = $44

Less: Variable cost = $28

Contribution per unit = $16

Hours required for each unit = 8

Hourly contribution = $16/8 = $2 per hour

Since the hourly contribution is same the product which requires least hours shall be produced and sold so that maximum units can be sold and maximum profit can be earned.

Therefore if hours are limited Phone X is more profitable than Phone Y.