Tocon Company produces two components: A-1 and A-2. The unit throughput contribution
margins for A-1 and A-2 are $150 and $300, respectively. Each co... Accounting MCQs | Accounting MCQs

Tocon Company produces two components: A-1 and A-2. The unit throughput contribution
margins for A-1 and A-2 are $150 and $300, respectively. Each component must proceed
through two processes: Operation 1 and Operation 2. The capacity of Operation 1 is 180
machine hours, with A-1 and A-2 requiring 1 hour and 3 hours, respectively. Furthermore,
Tocon can sell only 45 units of A-1 and 100 units of A-2. However, Tocon is considering
expanding Operation 1’s capacity by 90 machine hours at a cost of $80 per hour. Assuming
that Operation 2 has sufficient capacity to handle any additional output from Operation 1,
Tocon should produce
Units of A-1 Units of A-2

180 045 10045 750 60Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

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.