Evaluate the amount of contribution margin

Assignment Help Financial Accounting

Reference no: EM1313035

Utilization of constrained resources. Calculation of amount of contribution.

Banner company produce three products A,B and C . The selling price, variable costs and contribution margin for one unit of each product follow.

	Product
	A	B	C
Selling price.....	$60	$90	$80
Variable costs:
Direct materials	27	14	40
Direct labor	12	32	16
Variable manufacturing overhead	3	8	4
Total variable cost	42	54	60
Contribution margin	$18	$36	$20
Contribution margin ratio	30%	40%	25%

Due to a strike in the plant of one of its competitors, demand for the company's products far exceeds its capacity to produce. Management is trying to determine which product(s) to concentrate on next week in filling its backlog of orders. The direct labor rate is $8 per hour, and only 3,000 hours of labor time are available each week.

Required:
1. Compute the amount of Contribution margin that will be obtained per hour of labor time spent on each product.
2. Which orders would you recommend that the company work on next week-the order for Product A, Product B, or Product C? Show computations.
3. By paying overtime wages more than 3,000 hours of direct labor time can be made available next week. Up to how much should the company be willing to pay per hour in overtime wages as long as there is unfilled demand for the three products? Explain.

Reference no: EM1313035

Questions Cloud

Developing a punnett square : In turtles, brown shells and the red legs are most prevalent forms of the traits. Occasionally, green shells and yellow legs are examined.

Find the company''s debt ratio : The company is financed entirely with debt and common equity. Find the company's debt ratio

Evaluate alumbat''s current tie ratio : Evaluate Alumbat's current TIE ratio and Calculation of times-interest-earned ratio

Gametes generated by wild type turtle. : In the turtles, brown shells and red legs are most prevalent forms of traits. Occassionally green shells and yellow legs are observed.

Evaluate the amount of contribution margin : Utilization of constrained resources. Calculation of amount of contribution - Evaluate the amount of Contribution margin that will be obtained per hour of labor time spent on each product.

Evaluate company''s net operating income : What effect would accepting this order have on the company's net operating income if a special price of $349.95 is offered per bracelet for this order? Should the special order be accepted at this price

Freed capacity to launch a new product : Suppose that if the thermostats were purchased, Climate-Control, Inc., could use the freed capacity to launch a new product. The segment margin of the new product would be $65,000 per year. Should Climate-Control, Inc., accept the offer to buy the..

Computation of income elasticity : Compute the income elasticity of demand for product below, by using average values for quantities and incomes.

Generation of gametes : How many gametes can be generated from an individual along with the genotype CCDd? Utilize a drawing to display the possible ways homologous chromosomes can orient themselves.

User Account

All Pages