Problem and Solution 14 -39

Problem and Solution 14 -39 - an arbitrary time period for...

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Problem 14-39 Duo Company Manufactures two products, Uno and Dos. Contribution Margin data follow. Particulars Uno Doss Unit Sales Price $ 13.00 $ 31.00 Less – Variable Cost Direct Material $ 7.00 $ 5.00 Direct Labor $ 1.00 $ 6.00 Variable OHs $ 1.25 $ 7.50 Variable Selling and Admin Cost $ 0.75 $ 0.50 Total Variable Cost $ 10.00 $ 19.00 Unit Contribution Margin $ 3.00 $ 12.00 Duo’s company production process uses highly skilled labor, which is sort in supply. The same employee work on both product and earn the same wage rate. Required: 1. Which of the Duo’s Product is more profitable? Solution to 14 -39 The most profitable product is the one that yields the highest contribution margin per unit of the scarce resource, which is direct labor. We do not know the amount of direct-labor time required per unit of either product, but we do know that Dos requires six times as much direct labor per unit as Uno. Define
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Unformatted text preview: an arbitrary time period for which direct laborers earn $1.00, and call this a time unit. The two products contribution margins per time unit are calculated as follows: Uno Dos Unit contribution margin . ...................................... $3.00 $12.00 Time units required per unit of product . ........... 1 6 Contribution margin per time unit Uno: ($3.00 1) . ................................................ $3.00 Dos: ($12.00 6) . ............................................... $ 2.00 Therefore, Uno is a more profitable product. Any arbitrary amount of direct labor time expended on Uno production will result in a greater contribution margin than an equivalent amount of labor time spent on Dos production....
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This note was uploaded on 02/29/2012 for the course E 101 taught by Professor Sfere during the Spring '12 term at Abilene Christian University.

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Problem and Solution 14 -39 - an arbitrary time period for...

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