Reference no: EM132598179

CHAVEZ Corporation produces three products: Alpha, Beta and Delta. The following unit information is available:

                                                     Alpha                      Beta                     Delta

Selling price                           $ 60                      $ 90                    $ 80

Variable costs:

Direct materials                           27                       14                      40

Direct labor                                12                          32                       16

Variable overhead                            3                        8                           4

Total variable costs                         42                        54                        60

Contribution margin                          $ 18                        $ 36                  $ 20

Contribution margin ratio                      30%                        40%                  25%

Hour required per unit                              1.                            5 4                         2

The direct labor rate is averages $8 per hour. Based on current staffing, a maximum of 3,000 direct labor hours are available each month.

A suspicious fire has burned down the factor of their biggest competitor. As a result, they are experiencing large demand which is WAY bigger than their current capacity. They need to know which product to focus on next month.

Question 1. Which orders would you recommend that the company work on next month - orders for Alpha, Beta or Delta? Show all computations.

Question 2. NOW ASSUME that the current market demand for Alpha is 1,000 units. In this case, how many BETA should they manufacture?