Usually fixed costs are not affected by this usually

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Unformatted text preview: ng to be used. how limited resources are going to be used. • Usually, fixed costs are not affected by this • Usually, fixed costs are not affected by this decision, so management can focus on decision, so management can focus on maximizing total contribution margin. maximizing total contribution margin. Let’s look at the Martin, Inc. example. Let’s look at the Martin, Inc. example. 14-36 Limited Resources Limited Martin, Inc. produces two products and selected data is shown below: 14-37 Limited Resources Limited • The lathe is the scarce resource because • The lathe is the scarce resource because tthere is excess capacity on other here is excess capacity on other machines. The lathe is being used at machines. The lathe is being used at 100% of its capacity. 100% of its capacity. • The lathe capacity is 2,400 minutes per • The lathe capacity is 2,400 minutes per week. week. Should Martin focus its efforts Should Martin focus its efforts on Webs or Highs? on Webs or Highs? 14-38 Limited Resources Limited Let’s calculate the contribution margin per unit of the scarce resource, the lathe. Highs should be emphasized.. It is the more valuable Highs should be emphasized It is the more valuable use of the scarce resource the lathe, yielding a use of the scarce resource the lathe, yielding a contribution margin of $30 per minute as opposed to contribution margin of $30 per minute as opposed to $24 per minute for the Webs. $24 per minute for the Webs. If there are no other considerations, the best plan would be to produce to meet current 14-39 demand for Highs and then use remaining capaci...
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This note was uploaded on 02/10/2014 for the course ACCT 331 taught by Professor Kline during the Fall '10 term at Drexel.

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