Corporation makes three products that use compound W, the current constrained re
ID: 2587212 • Letter: C
Question
Corporation makes three products that use compound W, the current constrained resource. Data conceming those products appear below RP Selling price per unit Variable cost per unit Centiliters of compound W $247.07 $20156 4.1 $536.48 $450.6 76 $23810 $168.5 4.8 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. O LH.RPKI O RP.LH.KI References Multiple Choice Oifficulty: 1 Easy TB MC Qu. 07-71 Hoang Corporation makes three products... Learning Objective: 07-05 Determine the most profitable use of a constrained resourceExplanation / Answer
A KI LH RP Selling Price 247.07 536.48 238.1 Less: V Cost 201.56 450.6 168.5 Contribution Margin 45.51 85.88 69.6 Contrained required PU 4.1 7.6 4.8 Contribution PU of Contraint 11.1 11.3 14.5 Ranking III II I Company should Focus on RP,LH,KI B No of Computers 400 Total Cost 576000 Upgarde Cost 200000 Selling Price post Upgrade 260000 Selling Price in present condition 40000 Cost to be Incurred 200000 Add: Opportunity Cost (SP in present condition) 40000 Total 240000 No of Computers 400 SP per Computer 600 C Units of Product X 15300 Selling Price PU 23.00 VC PU 17.00 Contribution PU 6.00 Total Contribution Loss if Discontinued 91800 Total Fixed OH Charged to Product X 103000 Non Avoidable FOH 74000 Avoidable F OH 29000 Contribution Less Saving from Avoidable FOH 62800 Profit will decrease by 62800/- D Saless 941000 VC 420000 Contribution 521000 Less: F Maufacturing OH 355000 Less: F S&A OH 262000 Net Operating Income -96000 E Total Units 120000 Direct Material 24000 Direct Labor 36000 V Manufacturing OH 18000 F Manufacturing OH 60000 Relevant Cost for Make or Buy Decision: Direct Material 24000 Direct Labor 36000 V Manufacturing OH 18000 Avoidable F Manufacturing OH 15000 Total Cost to Manufacture 93000 Add: Opportunity Lost of Renting 40200 Total Relevant Cost 133200 Total Units 120000 Cost PU 1.11 Outside Suppier Offer 0.80 Gain PU in Buying over Manufacturing 0.31 Total Units 120000 Total Profit 37200 Profit will increase by Rs 37200/-