Joseph Hutton Enterprises has met all production requirements for the current mo
ID: 2572278 • Letter: J
Question
Joseph Hutton Enterprises has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and costs for three models of one of its product lines are as follows:
No Frills Standard Options Super
Selling price $35.00 $45.00 $65.00
Direct Materials $10.00 $12.00 $14.00
Direct labor ($15/hr.) $7.50 $12.00 $21.00
Variable Overhead $4.00 $6.40 $11.20
Fixed Overhead $3.00 $5.00 $5.00
Variable overhead is charged to products on the basis of direct labor dollars, and fixed overhead is charged to products on the basis of machine hours.
1) If Joseph Hutton Enterprises has excess machine capacity and can add more labor as needed (neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product or products?
2) If Joseph Hutton Enterprises has excess machine capacity but a limited amount of labor time, the production capacity should be devoted toproducing which product or products?
Explanation / Answer
Solution:
a) Determining the Excess Production Capacity Should be Devoted to Producing Which Product or Products:
When there is No Limit on the Production Capacity, then the Super Model should be Manufactured Because it has the Highest Contribution Margin Per Unit.
b) Determining the Production Capacity Should be Devoted to Producing Which Product or Products:
Direct Labor Hours Required
(DL$ / $15 Per Hr.)
When the Labor in Short Supply, No Frills Model Should be Manufactured Because it has the Highest Contribution Margin Per Direct Labor Hour.
No Frills Model Standard Model Super Model Selling Price $35.00 $45.00 $65.00 Direct Materials $10.00 $12.00 $14.00 Direct labor ($15/hr.) $7.50 $12.00 $21.00 Variable Overhead $4.00 $6.40 $11.20 Total Variable Costs $21.50 $30.40 $46.20 Contribution Margin $13.50 $14.60 $18.80Related Questions
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