Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost
ID: 2510008 • Letter: G
Question
Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost and revenue data pertaining to each product are as follows.
Android Bio-Mutant Cyclops
Selling price $100 $65 $125
Direct labor 48 24 60
Direct materials 9 8 16
Variable overhead 7 4 9
At the present time, demand for each of the company's products far exceeds its capacity to produce them. Thus, management is trying to determine which of its games to concentrate on next week in filling its backlog of orders. Gunst's direct labor rate is $12 per hour, and only 1,000 hours of direct labor are available each week.
Determine the maximum total contribution margin the company can make by its best use of the 1,000 available hours. (Do not round intermediate calculations.)
Total contribution Margin ________________?
Explanation / Answer
Answer
Android
Bio Mutant
Cyclops
Direct labor (A)
$48
$24
$60
Direct labor rate (B)
$12
$12
$12
Direct labor hours per unit (A/B)
4
2
5
Android
Bio Mutant
Cyclops
Sale price
100
65
125
(-) variable cost
Direct labor
48
24
60
Direct material
9
8
16
Variable overhead
7
4
9
Total variable cost
64
36
85
Contribution margin
$36
$29
$40
Direct labor hours per unit
4
2
5
Contribution margin per DLH
$9
$14.5
$8
Ranking to produce
2nd
1st
3rd
Available hours
1000 DLHs
No. of units that can be produced of Bio Mutant [1000/2 DLH per unit]
500 units
Contribution per unit
$29 per unit
Total Contribution margin
$14,500
Android
Bio Mutant
Cyclops
Direct labor (A)
$48
$24
$60
Direct labor rate (B)
$12
$12
$12
Direct labor hours per unit (A/B)
4
2
5
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