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GNBExam13 - GNB 12e Practice Exam Chapter 13 1. Bazar...

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GNB 12e Practice Exam – Chapter 13 1. Bazar Company is a small family business that produces wooden plaques and trophies: Plaques Trophies Selling price per unit $18 $15 Variable cost per unit 12 8 Contribution margin per unit $ 6 $ 7 Contribution margin ratio 33% 47% In producing the items, the primary “bottleneck” is due to the fact the company only has one machine, a sander, to sand the wood that is used for the plaques or the trophies. Generally, the wood required for each plaque takes 0.25 hour to sand, while the word required for each trophy takes 0.50 hour to sand. Based on the constraint related to the machine time, which product should be emphasized if only limited machine time is available? To evaluate a situation where there is a constrained resource (“bottleneck”), the contribution margin per unit of constrained resource should be calculated. While at first it appears the trophies should be emphasized based on the data given above, when the contribution margin per machine hour is computed, it appears the plaques should be emphasized, as follows: Plaques Trophies Contribution margin (CM) per unit $ 6 $ 7 Machine hours per unit (MH) .25 .50 CM per machine hour (CM ÷ MH) $ 24 $ 14 In other words, for each hour of machine time, the wood for four plaques can be sanded with a CM of $6 per plaque, for a total of $24 CM per machine hour. Alternatively, for each hour of machine time, the wood for two trophies can be sanded with a CM of $7 per trophy, for a total of $14 CM per hour of machine time. So with limited machine time, the plaques should be emphasized since more CM per machine hour will be realized. 2.
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This note was uploaded on 07/15/2010 for the course ECON 137A taught by Professor Watson during the Fall '08 term at UCSB.

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GNBExam13 - GNB 12e Practice Exam Chapter 13 1. Bazar...

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