Divided by the number of units of the scarce resource

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divided by the number of units of the scarce resource required to produce one unit of the product. For example, if a product’s contribution margin per unit is $5 and it requires two hours of direct labour to produce one unit, the contribution margin per direct labour hour is $2.50. In a short-term product mix decision, products are produced in order of the highest contribution margin per unit of limited resource. EXERCISE 20.27 (15 minutes) Time and material pricing: manufacturer 1 Material component of time and material pricing formula: 0 2 . 1 Dept Repair in used materials of cost annual costs storage and handling material annual job on incurred cost material + job on incurred cost material 2 Material component of price, using formula developed in requirement 1: [$8000 + ($8000 0.04)] 1.20 = $8320 1.20 = $9984 New price to be quoted on yacht refurbishment: Total price of job = time charges + material charges = $10 400* + $9984 = $20 384 * from Exhibit 20.5 EXERCISE 20.26 (25 minutes) Cost-plus pricing formulas: manufacturer Cost-plus pricing formula 1 Variable manufacturing cost $200 $400 = $200 + (100% $200) a Applied fixed manufacturing cost 70 2 Absorption manufacturing cost $270 $400= $270 + (48.15% $270) b Variable selling and administrative cost 30 Allocated fixed selling and administrative cost 50 3 Total cost $350 $400= $350 + (14.29% $350) c
Variable manufacturing cost $200 Variable selling and administrative cost 30 4 Total variable cost $230 $400= $230 + (73.91% $230) d a ($400 – $200) ÷ $200 = 100% b ($400– $270) ÷ $270 = 48.15% (rounded) c ($400– $350) ÷ $350 = 14.29% (rounded) d ($400– $230) ÷ $230 = 73.91% (rounded)

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