Wright, Inc. produces three products. Data concerning the selling prices and uni
ID: 2598002 • Letter: W
Question
Wright, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:
Product:
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 2,700 minutes of tapping machine time available this week.
Required:
a-1. Calculate the contribution margin per minute for all three products. (Round your answers to 2 decimal places.)
a-2.Given the tapping machine constraint, which product should be emphasized?
[ ] Product C
[ ] Product D
[ ] Product E
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?
Explanation / Answer
a-1)
C
D
E
Selling price (A)
95
75
105
Variable costs (B)
70
60
75
Contribution per unit (A-B)
25
15
30
Tapping Machine time (minutes)
10
5
5
Contribution per minute
25/10 = 2.5
15/5 = 3
30/5 = 6
a-2)
Given the tapping machine constraint, Product E should be emphasized.
a-b)
Maximum amount = 6*60 = 360 per hour
C
D
E
Selling price (A)
95
75
105
Variable costs (B)
70
60
75
Contribution per unit (A-B)
25
15
30
Tapping Machine time (minutes)
10
5
5
Contribution per minute
25/10 = 2.5
15/5 = 3
30/5 = 6
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