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Question - Brynles Manufacturing Company produces two products for which the following data have been tabulated. Fixed manufacturing cost is applied at a rate of P1.00 per machine hour.
Per Unit
XY-7
BD-4
Selling price
P4.00
P3.00
Variable manufacturing cost
P2.00
P1.50
Fixed manufacturing cost
P0.75
P0.20
Variable selling cost
P1.00
The sales manager has had a P160,000 increase in the budget allotment for advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company's customers.
Required - Suppose Brynles has only 100,000 machine hours that can be made available to produce additional units of XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of this production capacity, which product should be advertised and what is the estimated increase in contribution margin earned?
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