2. Beaver Company produces three products, with costs and selling prices as foll

Question

2. Beaver Company produces three products, with costs and selling prices as follows: Product C Product A Selling price per unit S30 10096 S20 10096 $15 100% Variable costs per unit 18 6096 IS 75% 40% Contribution margin per unit S12 40% 25% s2 6096 Product B A particular machine is a bottleneck. On that machine, 3 machine hours are required to produce each unit of Product A, I hour is required to produce each unit of Product B, and 2 hours are required to produce each unit of Product C. Which product should they focus on manufacturing first and which one last?

Explanation / Answer

Product A Product B Product C Selling Price per unit $    30.00 $    20.00 $    15.00 Variable Cost per unit $    18.00 $    15.00 $       6.00 Contribution Margin Per Unit $    12.00 $       5.00 $       9.00 No of hrs required to manufacture each product 3 hrs 1 hr 2 hrs Contribution per hr Rs.   4.00 Rs.   5.00 Rs.   4.50 Ranking III I II Product with higher contribution per hour should be produced first and so on. In the present case, Product B has highest Contribution per machine hr and therefore should be produced first. Ranking in the order of highest contribution is as under Rank I Product B (highest contribution/hr) Rank II Product C Rank III Product B (lowest contribution/hr)

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