Exercise 12-13 Utilization of a Constrained Resource Given: Banner Company produces three products: A, B, and C. The selling price, variable costs and contribution margin for one unit of each product follow: 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 per unit $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) Required: 1. Compute the amount of contribution margin that will be obtained per hour of labor time spent on each product. A B C Contribution margin per unit $18 $36 $20 Direct labor $12 $32 $16 Direct labor rate per hour 8 8 8 Direct labor hours required per unit 1.50 4.00 2.00 CM per unit of limiting resource (DLH) $12.00 $9.00 $10.00 2. Which orders would you recommend that the company work on next week -- the orders
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