0728--01 - Relevant cost analysis: Product selection...

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Unformatted text preview: Relevant cost analysis: Product selection Spartan Bike Company example (p. 91) Cruise Race Mountain Demand constraint: Unit demand .......................................................................................................................................... 3000 4500 7500 Historical price and cost data: Selling price ........................................................................................................................................ $175 $200 $150 Variable cost per unit ............................................................................................................................... $85 $95 $110 Fixed cost per unit ............................................................................................................................... $30 $35 $28 Direct labor hours per unit .......................................................................................................................... 2.5 3.0 4.0 Resource constraint: Expected total direct labor hours ........................................................................................................................................ 40,000 Decision variable(s): $90 CM per unit ......................................................................................................................... $80 $65 2/5 CM per direct labor hour ............................................................................................................ $27 $23 $26 Units per direct labor hour ......................................................................................................................... 1/3 1/4 Maximum production by product ........................................................................................... 13,333 10,000 16,000 $1,066,667 $900,000 $1,040,000 Maximum TCM by product ......................................................................................................................... Optimal production plan: Unit demand .......................................................................................................................................... 3000 4500 7500 Units per direct labor hour ......................................................................................................................... 2/5 1/3 1/4 Direct labor hours demanded .................................................................................................................................... 9000 18000 18750 Excess demand in terms of DLHs .......................................................................................................................................... -5750 Planned direct labor hours ................................................................................................................................... 9000 12250 18750 40000 $27 $23 $26 CM per direct labor hour ............................................................................................................ Total CM by product ......................................................................................................................... $487,500 $240,000 $275,625 Planned unit production ................................................................................................................................... 3000 3062.5 7500 => Choose optimal production/sales plan based on contribution margin by constraining resource. 1003125 ...
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