Question

Service Emphasis
The following analysis of selected data is for each of the two services Gates Corporation provides.

				Service A	Service B
Per-service data at 10,000 services
Sales price				$40	$36
Service costs:
Variable				8	13
Fixed				6	4
Selling and administrative expenses:
Variable				5	3
Fixed				3	1

In the Gates operation, labor capacity is the company's constraining resource. Each unit of A requires 3 hours of labor, and each unit of B requires 2 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Gates might have.

	Service
	A	B
Revenue	Answer	Answer
Less: Variable cost	Answer	Answer
Contribution margin	Answer	Answer
Labor hours per unit	Answer	Answer
Contribution margin per labor hour	Answer	Answer

which is true?

A. Any unused capacity should be devoted to Service B, which has $1 less contribution margin per labor hour than does Service A.

B. Any unused capacity should be devoted to Service A, which has $1 more contribution margin per labor hour than does Service A.

C. Any unused capacity should be devoted to Service B, which has $1 more contribution margin per labor hour than does Service A.

Answer 1

Answer: