Norton’s Mufflers manufactures three different product lines, Model X, Model Y,

Question

Norton’s Mufflers manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply:

                                                                                    Model X          Model Y           Model Z

         Selling price                                                         $80                  $90                $100

         Direct materials                                                    30                    30                    30

         Direct labor ($10 per hour)                                  15                    15                    20

         Variable support costs ($5 per machine-hour) 5                    10                    10

         Fixed support costs                                               20                    20                    20

         a.      For each model, compute the contribution margin per unit.

         b.      For each model, compute the contribution margin per machine-hour.

         c.      If there is excess capacity, which model is the most profitable to produce?

         d.      If there is a machine breakdown (therefore a constraint in machine hours), which model is the most profitable to produce?

         e.    If we only have 500 Machine horus and have three orders; one to produce at least 300 models of x; one to produce at least 100 Models of y; and the last order to produce at least 100 models of Z. In addition, if you select to complete a particular order (you don’t have to select all three) YOU MUST completed their minimum level required or not accepted that order at all (ie you cant drop below those levels above)  

Explanation / Answer

(1)

a.      For each model, compute the contribution margin per unit.

Answer:

The contribution margin per unit is

(b)

b.      For each model, compute the contribution margin per machine-hour.

(c)

c.      If there is excess capacity, which model is the most profitable to produce?

Answer: When there is excess capacity, Model Y is the most profitable because it has thegreatest contribution margin per unit

(d) If there is a machine breakdown (therefore a constraint in machine hours), which model is the most profitable to produce

Answer :

When there are machine-hour capacity constraints, Model X is the most profitablebecause it has the greatest contribution margin per constrained resource.

(e)

we have limited 500 machine hour and we can produce all three as required so that order is not accepted

Model X Amount in $ Selling price 80 Less: Direct materials 30 Direct labor 15 Variable support costs 5 Contribution per unit 30

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.