Business Finance Homework Help

CyclePath Company produces two different products that have the following price and cost characteristics:

	Bicycle	Tricycle
Selling price per unit	100	400
Variable cost per unit	40	240

Management believes that pushing sales of the Bicycle product would maximize company profits because of the high contribution margin per unit for this product. However, only 50,000 labor hours are available each year, and the Bicycle product requires 4 labor hours per unit while the Tricycle model requires 2 labor hours per unit. The company sells everything it produces.

Required:

a. Calculate the contribution margin per unit of constrained resource for each model.

b. Which model would CyclePath prefer to sell to maximize overall company profit? Explain.