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If contribution/hour for product X is $4 and contribution/hour for product Y is $3, for all the time that division A is producing Y instead of X, wouldn’t it be just losing the difference in contribution per hour so 4-3 = 1?
Why is it that instead it is the whole of contribution/hour of product X multiplied by the number of hour it takes to produce product Y?
You make a net loss if you produce Y but you still get some contribution no?
Please help.
thank you sir
If Division B did not exist then A would prefer to make Product X because it generates the highest contribution per hour.
If they do make Product Y for division B, then every hour they use to make B is taking away an hour from making Product X and is therefore losing them $4 per hour.
Have you watched the free lecture working through this?
yes i have…..
my question was this – instead of producing Product X every hour, they are producing Product Y so there is some gain in contribution from producing Product Y.
Although Division A would prefer to produce Product X because it gives higher contribution per hour, it is in effect earning $3 per hour from producing Y instead of earning $4 per hour by producing X instead, so should it be just a loss of $1 per hour?
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