CES manufactures and sells three products. Relevant per unit data concerni ng ea
ID: 2548702 • Letter: C
Question
CES manufactures and sells three products. Relevant per unit data concerni ng each product are given below Product Selling price Variable costs and expenses $7 $14 $18 $5 $12 $15 d Machine hours to produce Compute the contribution margin per unit of limited resource (machine hours) for each product. (Round contribution margin per unit to 2 decimal places, e.g. 1.25.) Product A Product B Product C Contribution margin per unit of limited resource s Assuming 3,000 additional machine hours are available, which product should be manufactured? What is the total contribution margin if the hours are (1) divided equaly amoung the products and (2) if they are allocated entirely to the product identified above. Total contribution margin (1) Divided equally amoung the products (2) Allocated entirely to the product identified aboveExplanation / Answer
Contribution margin per unit.
Product A = SP/Unit – VC/Unit = $ 7 - $ 5 = $ 2 / Units
Product B = SP/Unit – VC/Unit = $ 14 - $ 12 = $ 2 / Units
Product C = SP/Unit – VC/Unit = $ 18 - $ 15 = $ 3 / Units
Assuming 1,200 additional machine hours are available, which product should be manufactured
Product A = (3000 / 2) x $ 2 = $ 3000
Product B = (3000 / 1) x $ 2 = $ 6000
Product C = (3000 / 2) x $ 3 = $ 4500
Since the Product B has the highest total contribution margin, it should be manufactured
1.Total Contribution if divided equally among the products
= ( 3000 / 3 ) * ( $2+$2+$3) = $ 21000
2.Total Contribution if Allocated entirely to the products identified above
= $ 3000 + $ 6000 + $ 4500 = $ 13500