Service Emphasis The following analysis of selected data is for each of the two

Question

Service Emphasis The following analysis of selected data is for each of the two services Rockville Corporation provides. Service G Service H Per-unit data at 10,000 services Sales price $29 $16 Service costs: Variable 9 7 Fixed 6 4 Selling and administrative expenses: Variable 5 2 Fixed 3 1 In the Rockville's operation, labor capacity is the company’s constraining resource. Each unit of G requires 3 hours of labor, and each unit of H requires 1 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Rockville might have. Service G H Revenue $Answer $Answer Less: Variable cost Answer Answer Contribution margin $Answer $Answer Labor hours per unit Answer Answer Contribution margin per labor hour $Answer $Answer Any unused capacity should be devoted to Service H, which has $2 less contribution margin per labor hour than does Service G. Any unused capacity should be devoted to Service G, which has $2 more contribution margin per labor hour than does Service H. Any unused capacity should be devoted to Service H, which has $2 more contribution margin per labor hour than does Service G. Check

Explanation / Answer

Since H has higher contribution per hour by 2 (7-5), surplus capacity should be devoted to Service H

G H SP         29.00         16.00 VC           9.00           7.00 FC           6.00           4.00 SnD VC           5.00           2.00 FC           3.00           1.00 Labor hour needed 3 hour 1 Hour Contribution         15.00           7.00 (SP-VC-SnD VC) Contribution per hour 5 7 (Contribution/Hour)

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