Wright Inc. produces three products. Data concerning the selling prices and unit

Question

Wright Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below Product Selling price Variable costs Fixed costs Tapping machine time (minutes) S 90 $ 50 $ 95 S 45 $ 35 $ 50 S 40 $ 5 $ 37 10 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. Given the tapping machine constraint, which product should be emphasized? Product C Product D ProductE 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? Machine time would be used to per hour

Explanation / Answer

SOLUTION

(A) The product to be emphasized can be determined by computing the contribution margin per unit of the scarce resource, which in the given case is tapping machine time-

Product E should be emphasized because it has a greatest contribution margin per unit of the scarce resource.

(B) If additional tapping machine time would be used to produce more of Product E, the time would be worth 95 * $9 = $855 per hour.

Product C ($) Product D ($) Product E ($) Selling price 90 50 95 Variable costs 45 35 50 Contribution margin 45 15 45 Tapping machine time (minutes) 10 5 5 Contribution margin per minute 4.5 3 9

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.