Sales prices and variable costs are as follows: ContainAll produces plastic stor

Question

Sales prices and variable costs are as follows: ContainAll produces plastic storage bins for household storage needs. con to view the costs) (Click the icon to view additional information.) Read the requirements. Requirement 1. Which product should ContainAll emphasize? Why? Complete the product mix analysis to determine the contribution margin per machine hour. ContainAIl Product Mix Analysis Regular Large Sales price per unit Variable cost per unit Contribution margin per unit Units per machine hour Contribution margin per machine hour Which product should ContainAll emphasize? Why? ContainAll should emphasize the production of ?| because this product has the higher

Explanation / Answer

SOLUTION

(A) Contribution Margin per Product:

Contribution Margin per Machine Hour:

When facing a constraint concerning which products to emphasize, the decision rule is to emphasize the product with the highest contribution margin per unit of the constraint. Regular bins have a higher contribution margin per machine hour, $87.00, than large bins, $76.80. ContainAll will have a higher profit by producing regular bins; therefore, this product should be emphasized.

(B) To maximize profits, ContainAll should make 45,000 regular bins (3,000 machine hours available * 15 regular bins per hour) and zero large bins.

(C)

Regular Bin ($) Large Bin ($) Sales price per bin 8.90 10.60 Variable cost per bin 3.10 4.20 Contribution margin per bin 5.80 6.40

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