Assume that each part must be drilled by a special machine. The firm owns three machines
that together provide 120 drilling hours per week. Part X requires one hour of
drilling, and Part Y requires three hours of drilling. Assuming no other binding constraints,
what is the optimal mix of parts? Since each unit of Part X requires one hour of
drilling, 120 units of Part X can be produced per week (120/1). At $300 per unit, Schaller
can earn a total contribution margin of $36,000 per week. On the other hand, Part Y requires
three hours of drilling per unit; therefore, forty (120/3) parts can be produced.
At $600 per unit, the total contribution margin is $24,000 per week. Producing only
Part X yields a higher profit level than producing only Part Y—even though the unit contribution
margin for Part Y is twice the amount of Part X