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Question - Peak Industries manufactures two types of ATVs, Riders and Ranchers. Riders sell for $8,000 per unit and Ranchers sell for $15,000 per unit. Per unit variable manufacturing costs are $5,000 for a Rider and $9,000 for a Rancher. It takes 100 direct labor hours to produce a Rider, and 300 direct labor hours to produce a Rancher. Peak has only 30,000 direct labor hours available each month. ATVs are in high demand, so Peak can sell all the output of either model.
Required -
a. How many units of each model should Peak produce in a month? What is the total monthly contribution margin?
b. Now assume that only 200 Riders can be sold each month. How many units of each model should Peak produce in a month? What is the total monthly contribution margin?
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