Chapter_13Day2

Chapter_13Day2 - CHAPTER 13 UTILIZING A CONSTRAINED...

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CHAPTER 13
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UTILIZING A CONSTRAINED  RESOURCE o Constraint-  A limited resource that restricts the  company’s ability to satisfy demand o Bottleneck-  Work Center or Machine that is a  constraint o When capacity is not sufficient to satisfy  demand, something must be cut back. Which  products should be cut back and by how much? o When fixed costs don’t change. Maximize CM o The total contribution margin is maximized by  emphasizing the products with the greatest  contribution margin per unit of the constrained  resource.
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X Y Selling price per unit $60 $50 Variable expenses per unit   36   35 Contribution margin $24 $15 Contribution margin ratio 40% 30% Current demand per week (units) 2,000 2,200 Processing time required on  Machine N34 per unit 1.0 minute 0.5 minute EXAMPLE: Ensign Company makes two products, X and Y. The current constraint is Machine N34. Selected  data on the products follow: Machine N34 is available for 2,400 minutes per week, which is not enough capacity to satisfy demand for  both  product X and product Y. Should the company focus its efforts on product X or product Y? Machine N34 is available for 2,400 minutes per week, which is not enough  capacity to satisfy demand for both product X and product Y. Should the  company focus its efforts on product X or product Y?
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X Y Contribution margin per unit (a) $24 $15
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This document was uploaded on 05/04/2009.

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Chapter_13Day2 - CHAPTER 13 UTILIZING A CONSTRAINED...

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