Detailed Answer
Answer (C) is correct.
A-1’s throughput contribution margin per unit of the scarce resource (the
internal binding constraint) is $150 ($150 UCM ÷ 1 machining hour). A-
2’s throughput contribution margin per unit of the scarce resource is
$100 ($300 UCM ÷ 3 machine hours). Consequently, Tocon should
produce as much A-1 as it can sell (45 units). If Tocon adds 90 machine
hours to increase the capacity of Operation 1 to 270 hours (180 + 90), it
cannot produce additional units of A-1 because the external binding
constraint has not been relaxed. However, it can produce additional units
of A-2. Given that the UCM per machine hour of A-2 is $100 and that
the cost is $80 per hour, adding capacity to Operation 1 is profitable.
Thus, Tocon should use 45 machine hours to produce 45 units of A-1.
The remaining 225 machine hours (270 – 45) should be used to produce
75 units (225 ÷ 3 hours) of A-2. The latter amount is within the external
binding constraint.