Oscar Corporation produces and sells three products. Unit data concerning each p

Question

Oscar Corporation produces and sells three products. Unit data concerning each product is shown below. Product X Y Z Selling price $200 $300 $250 Direct labor costs 30 75 45 Other variable costs 110 90 121 The company has 2,000 hours of labor available to build inventory in anticipation of the company's peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $15. Instructions (a) Determine the number of direct labor hours per unit. (b) Determine the contribution margin per direct labor hour. (c) Determine which product should be produced and the total contribution margin for that product.

Explanation / Answer

Cont Magin of prod X = SP - VC-Other VC = 200-30-110 = 60 Cont Magin of prod Y = SP - VC-Other VC = 300-75-90 = 135 Cont Magin of prod Z = SP - VC-Other VC = 250-45-121 = 84 (a) Determine the number of direct labor hours per unit. DL for X = DL Cost/DL Rate = 30/15 = 2 DL Hrs For Y = 75/15 = 5 DL Hrs For Z = 45/15 = 3DL Hrs (b) Determine the contribution margin per direct labor hour. Cont Margin for X = CM of X/No of DL Hrs of X = 60/2 = $30 per DL Hr CM for Y = 135/5 = $27 per DL Hr CM for Z = 84/3 = $28 per DL Hr (c) Determine which product should be produced and the total contribution margin for that product. Max COnt Margin per DL hr is for Prod X. So Prod X should be produced. Max Cont from X will be 2000 DL Hrs*$30 per DL Hr = $60,000

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