Last year, a sailboard company produced two types of boards: aregular board for multi-purpose sailing; and, a special trick boardused by experts for competitions. The regular board sells for $750and the competition board sells for $1,350. The variable productioncosts are $250 and $400 respectively, and the company has $400,000in fixed costs overall. Marketing staff have determined that thecompany should specialize in the competition boards only, and sellthe regular boards, if at all, under a different brand name. Lastyear the company made a profit, selling twice as many regularboards as competition boards, resulting in a fixed cost allocationof $5.00 per board. It takes 6 hours of direct labour to make aregular board and 12 hours to make a competition board. The companyworked at full capacity of 19,500 direct labour hours lastyear.
Based on the above information only, which productor mix of products, should thecompany choose? Assume that any and allproduction can be sold.
| | a) the competition board only, as it has a higher contributionmargin |
| | b) the regular board only, as it takes fewer direct labour hoursto build |
| | c) the regular board only, as it has the highest contributionmargin per direct labour hour |
| | d) any combination is equivalent, based on the contributionmargin times the number of boards that could be sold |
| | e) both as the company made a profit last year using thisstrategy |
