10.46 Profitability with resource limitations t L07 Lavender Plantations Pty Ltd manufactures three lavender-based products. candles. soaps and detergents. On average 75 000 candles, 50000 soaps and 125 000 detergents are sold. Next year. the company has a restricted advertising budget of $40000. which is sufcient to effectively promote only one of its products. The marketing department estimates that average sales of candles will increase by 25 per cent if they are advertised, while average sales of soaps will increase by 20 per cent and of detergents will increase by 10 per cent if they are advertised. The following data are provided. Guill- lam m Selling price per unit $25 $38 $20 Variable cost per unit $15 $22 $12 Machine hours per unit 1 hour 3 hours 1 hour Fixed costs are estimated to be $600 000 Required (a) Calculate the contribution margin for each product. (b) Calculate the contribution margin per machine hour for each product. (0) Assuming unlimited machine hours are available, which product should be promoted in the advertising campaign? (d) Would your answer to (c) change if there were 300 000 machine hours available for production? (e) Prepare a statement of prot or loss after you have made your decisions in (c) and (d). (i) Discuss when to use the contribution margins calculated in your answers to (a) and (b) above