Wright Inc. produces three products. Data concerning the selling prices and unit

Question

Wright Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The tapping machine is the constraint, with only 2,800 minutes of tapping machine time available this week.

Required:

a. Given the tapping machine constraint, which product should be emphasized?

b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of tapping machine time?

Product C D E Selling price $ 100 $ 80 $ 110 Variable costs $ 60 $ 50 $ 65 Fixed costs $ 10 $ 5 $ 7 Tapping machine time (minutes) 10 6 5

Explanation / Answer

a) Contribution margin per minute :

Product E should be emphasized.

b) 9 per minute so 0.15 per hour can the company be willing to pay for an additional hour of tapping machine time.

Product C Product D Product E Sale price per unit 100 80 110 Variable cost per unit 60 50 65 Contribution margin per unit 40 30 45 Tapping machine time (minutes) 10 6 5 Contribution margin per minute 4 5 9

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