iddleburg Inc produces 2 lines of mobile homes: Double wide and single wide. Uni

Question

iddleburg Inc produces 2 lines of mobile homes: Double wide and single wide. Unit cost and revenue data pertaining to each product are shown below: Selling price: Double Wide= $65,000 Single Wide= $35,000 Total variable costs Double wide= $45,000 single = 20,000 Direct Labor hours required Double= 500 single = 300 Machine hours required double = 250 single = 200 Contribution margin per labor hour double = ? Single =? Contribution margin per machine hour double=? single = ? Fixed costs are $100,000 a month and shift foreman is named Zeke Please complete the above table calculating the contribution margin per potential limiting factor.

PLEASE ANSWER THE BELOW QUESTIONS:

All other factors being equal, if Middleburg's production capacity is constrained by limited direct labor hours, which line of homes should it produce?

All other factors being equal, if middleburg's production capacity is contrained by limited machine hours, which line of homes should it produce?

Explanation / Answer

                                                Double Wide     Single Wide
Selling price: Double Wide         $65,000             $35,000
Less : Total variable costs            $45,000             $20,000
Contribution Margin                    $15,000             $15,000
Direct Labor hours required              500                     300
Cont. margin per labor hour         $30                      $50
$15,000 / 500 = $30
$15,000 / 300 = $50
Machine hours required                  250                       200
Cont. margin per machine hour  $60                       $75
$15,000 / 250 = $60
$15,000 / 200 = $75

All other factors being equal, if Middleburg's production capacity is constrained by limited direct labor hours, which line of homes should it produce?

Since contribution margin per direct labor hour is more ($50) for Single wide model as compared to contribution margin per direct labor hour ($30) for Double wide model, Middleburg should produce Single Wide model satsfying total demand for Single wide line and balance DLH, if any available, should be used to produce Double wide models.

All other factors being equal, if middleburg's production capacity is contrained by limited machine hours, which line of homes should it produce?

Since contribution margin per machine hour is more ($75) for Single wide model as compared to contribution margin per machine hour ($60) for Double wide model, Middleburg should produce Single Wide model satsfying total demand for Single wide line and balance DLH, if any available, should be used to produce Double wide models.

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