Freese Company manufactures and sells three products. Relevant per unit data con
ID: 2428509 • Letter: F
Question
Freese Company manufactures and sells three products. Relevant per unit data concerning each product are given below.Product
A B C
Selling price $11 $12 $15
Variable costs and expenses $ 4 $ 8 $ 9
Machine hours to produce 2 1 2
Instructions(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product. (Round contribution margin per unit of limited resource to 2 decimal places, e.g. 10.50. Round other answers to 0 decimal places, e.g. 125.)
product
A B C
$ $ $
CONTRUBUTION MARGIN
b) Assuming 3,000 additional machine hours are available, which product should be manufactured?
Product should be manufactured because it results in the highest contribution margin per machine hour.
(c) Complete the analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
MACHINE HOURS
CONTRUBTION MARGIN PER UNIT OF LIMITED RESOURCE
TOTAL CONTRIBUTION MARGIN
THE TOTAL CONTRUBUTION MARGIN IS $
Machine hours
Contribution margin per unit of limited resource
Total contribution margin
Explanation / Answer
Instructions(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product. (Round contribution margin per unit of limited resource to 2 decimal places, e.g. 10.50. Round other answers to 0 decimal places, e.g. 125.)
Product
A B C
Selling price $11 $12 $15
Variable costs and
expenses $4 $8 $9
Contribution Margin $7 $4 $6
Machine hours to
produce 2 1 2
Contribution Margin $3.50 $4 $3
b) Assuming 3,000 additional machine hours are available, which product should be manufactured?
Product B should be manufactured because it results in the highest contribution margin per machine hour i.e. $4 per machine hour.
(c) Complete the analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
(1) divided equally among the products
Products
A B C
MACHINE HOURS 1,000 1,000 1,000
CM PER UNIT OF
LIMITED RESOURCE $3.50 $4.00 $3.00
TOTAL CM $3,500 $4,000 $3,000
THE TOTAL CONTRUBUTION MARGIN IS $10,500
(2) allocated entirely to the product identified in (b) above
Product B
Machine hours 3,000
Contribution margin per unit
of limited resource $4.00
Total contribution margin $12,000
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