PE 25-8B Bottleneck profit

Product K has a unit contribution margin of $120. Product L has a unit contribution margin of $100. Product K requires five furnace hours, while Product L requires four furnace hours. Determine the most profitable product, assuming the furnace is a constraint.

Answer:

Product K Product L 

Unit contribution margin……………………………………………… $120 $100 

÷ Furnace hours per unit………………………………………………   5   4 

Unit contribution margin per production bottleneck hour……… $  24 $  25 

Product L is the most profitable in using bottleneck resources.