Question #5 5. Giko LTD makes three products (Abba, Babba, and Cabba), all of wh

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Question #5

5. Giko LTD makes three products (Abba, Babba, and Cabba), all of which use a very rare ingredient Called, Mecogen. Giko can purchase only 500 ounces of Mecogen per month from its East Asian source. Below are data for the three products: How should Giko allocate the 500 ounces of Mecogen assuming it can sell unlimited quantities of all three produces? a. All 500 ounces should be allocated to Abba b. All 500 ounces should be allocated to Babba C. All 500 ounces should be allocated to Cabba d. None of the above

Explanation / Answer

We Can derive the Contribution Per per ounce of Mecogen to Make the decision of allocating Mecogen.

Here the Contribution Margin Per Ounce of Mecogen is highest in Product Abba hence by producing 500 Units of Abba will give Giko Ltd maximum contribution hence 500 Ounces of Mecogen should be allocated to Product Abba.

Abba Babba Cabba Unit Selling Price $80 $65 $100 Unit Variable Cost $45 $40 $60 Unit Contribution Margin $35 $25 $40 Mecogen(Ounces Per Unit) 10 15 20 Contribution Margin Per Ounce of Mecogen $3.5 $2.5 $2

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