Mars Company manufactures and sells three products. Relevant per unit data conce

Question

Mars Company manufactures and sells three products. Relevant per unit data concerning each product are given below.

Product

A

B

C

2

a)

Compute the contribution margin per unit of limited resource (machine hours) for each product. (Round contribution margin per unit to 2 decimal places, e.g. 1.25.)

c) Prepare an analysis showing the total contribution margin if the additional hours are:

(1) Divided equally among the products. (Round contribution margin per unit to 2 decimal places, e.g. 1.25.)

d) Allocated entirely to the product identified above.

Product

A

B

C

Selling price $8 $14 $18 Variable costs and expenses $5 $12 $15 Machine hours to produce 2 1

2

Explanation / Answer

a)

b) If there is unlimited demand of the products, Product B should be manufactured from the additional machine hours of 1500 because contribution per machine hour in case of Product B is maximum.

C) 1) If additional hours are divided equally among the 3 products

Contribution

A= $1.50*500 hrs= $750

B= $2.00*500 hrs= $1000

C= $1.50*500 hrs= $750

Total contribution= $750+$1000+$750=$2500

D) Additional hrs are used to manufacture product B

Total contribution=$2.00*1500 hrs= $3000

Pls give your feedback!! Happy Learning :)

A B C Selling Price $8 $14 $18 variable cost and expenses $5 $12 $15 Contribution per unit (selling price-variable cost) $3 $2 $3 Machine Hours (Limited Resource) 2 1 2 Contribution per machine hour $1.50 $2.00 $1.50

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