Fargo Manufacturing Company produces two industrial solvents (XY-7, BD-4) for which the following data have been tabulated. Fixed manufacturing cost is applied to products at a rate of $1.00 per machine hour.

Per Unit                                                                                                         XY-7                                               BD-4

Selling price                                                                                                    $6.45                                            $4.20

Variable manufacturing costs                                                                          2 .70                                              1.70

Fixed manufacturing cost                                                                                   .80                                                .20

Variable selling cost                                                                                          1.80                                              1.75

 

The sales manager has had a $215,000 increase in her budget allotment for advertising and wants to apply the money on the most profitable product. The solvents are not substitutes for one another in the eyes of the company's customers. Suppose Fargo has only 140,000 machine hours that can be made available to produce XY-7 and BD-4.

If the potential increase in sales units for either product resulting from advertising is far in excess of production capabilities, determine which product should be produced and advertised. What is then the estimated contribution margin earned?