Question

Zoom Corporation manufactures and sells three different types of binoculars. They are referred to as Good, Better, and Best binoculars. Grinding and polishing time is limited. More time is required to grind and polish the lenses used in the Better and Best binoculars. Additional information is provided below.
Product Good Better Best
Selling price $97.80 $322.50 $834.00
Variable costs and expenses 51.00 180.00 479.00
Contribution margin $46.80 $142.50 $355.00
Grinding and polishing time required 0.6 hrs 1.5 hrs 5 hrs
Required:
1. Ignoring the time constraint, what strategy would appear to be optimal?
2. What is the contribution margin per unit of limited resource for each type of binocular? (Round answer to 0 decimal places)
3. If additional grinding and polishing time could be obtained, how should the additional capacity be used?

Answer 1

Answer:

1. Ignoring the time constraint, what strategy would appear to be optimal?

the company should produce the product that yields the highest contribution margin, in this case, the best binoculars with a contribution margin of $355

2. What is the contribution margin per unit of limited resource for each type of binocular? (Round answer to 0 decimal places)

contribution margin per grinding and polishing time:

good = $46.80 / 0.6 hr = $78

better = $142.50 / 1.5 hr = $95

best = $355 / 5 hr = $71 per hour

3. If additional grinding and polishing time could be obtained, how should the additional capacity be used?

they should produce "better binoculars" since the contribution margin per hour is higher

Answer 2

The strategy that would appear to be optimal is Best product because the has the highest contribution margin of the amount of $355.

Contribution margin

1. Zoom corporation

                                              Good   Better     Best

Selling price                         $97.80 $322.50 $834.00

Variable costs and expenses 51.00 180.00 479.00

Contribution margin                $46.80 $142.50 $355.00

Ignoring the time constraint, the strategy that would appear to be optimal is Best product because the has the highest contribution margin of the amount of $355.

2.Contribution margin per unit

                                                  Good  Better Best

Contribution margin                $46.80 $142.50 $355.00

Grinding and polishing time      0.6 hrs 1.5 hrs 5 hrs

Contribution margin per minutes 78       95      71

Rank                                                 2          1       3

3.  If additional grinding and polishing time could be obtained,  the additional capacity should be used to make product Better follow by Good and then Best.

Inconclusion the strategy that would appear to be optimal is Best product because the has the highest contribution margin of the amount of $355.

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