D E F Selling price $201.8 $304.3 $252.4 Direct labor costs 33.8 100.1 40.3 Othe
ID: 2554314 • Letter: D
Question
D E F Selling price $201.8 $304.3 $252.4 Direct labor costs 33.8 100.1 40.3 Other variable costs 103 81 147The company has 1,900 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $13. D E F Selling price $201.8 $304.3 $252.4 Direct labor costs 33.8 100.1 40.3 Other variable costs 103 81 147
The company has 1,900 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $13. D E F Direct labor Product D Product E Product F D E F Selling price $201.8 $304.3 $252.4 Direct labor costs 33.8 100.1 40.3 Other variable costs 103 81 147
The company has 1,900 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $13.
Explanation / Answer
Product D
Product E
Product F
Product D
Product E
Product F
Solution: A. The number of direct labor hours per unit Product D 2.6 hours per unit Product E 7.7 hours per unit Product F 3.1 hours per unit Working Notes: The number of direct labor hours per unit = Direct labor costs/the direct labor hourly rate Product D ($33.80/$13) 2.6 hours per unit Product E ($100.1/$13) 7.7 hours per unit Product F ($40.30/$13) 3.1 hours per unit B.Product D
Product E
Product F
Contribution margin per direct labor hour 25 16 21 Working Notes:Product D
Product E
Product F
Selling price 201.8 304.3 252.4 Less: Direct labor costs 33.8 100.1 40.3 Less: Other variable costs 103 81 147 I Contribution margin per unit 65 123.2 65.1 II Direct labor hours per unit 2.6 7.7 3.1 (calculated above) Contribution margin per direct labor hour = Contribution margin per unit /Direct labor hours per unit III=I ÷ II 25 16 21 C. Product D should be produced. Total contribution margin 47515 Notes: Here, constraint is labor hours and contribution margin per unit per hour is highest in case of Product D. $25 per hour. And maximum units that can be produced of product D, Total labor hours 1900 hours out of which 2.6 hours required per unit of Product D =1900/2.6 =730.76923 =731 units The total contribution margin for Product D = 731 units x Contribution margin per unit of product D =731 x 65 =$47,515 Please feel free to ask if anything about above solution in comment section of the question.Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.