Question

Problem 6-4A (Video)

Tanek Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Tanek is currently operating at full capacity with limited machine time.

Sales and production information relevant to each model follows.

		Product
		Economy		Standard		Deluxe
Selling price		$36		$60		$120
Variable costs and expenses		$19		$24		$56
Machine hours required		0.5		0.8		1.6

Calculate contribution margin per unit.

		Product
		Economy		Standard		Deluxe
Contribution margin per unit		$		$		$

LINK TO TEXT

Ignoring the machine time constraint, which single product should Tanek Industries produce?

StandardEconomyDeluxe

LINK TO TEXT

What is the contribution margin per unit of limited resource for each product? (Round answers to 2 decimal places, e.g. 10.50.)

		Economy		Standard		Deluxe
Contribution margin per limited resource		$		$		$

LINK TO TEXT

If additional machine time could be obtained, how should the additional time be used? The additional time should be used to produce the EconomyStandardDeluxe product.

Answer 1

1.

Contribution margin per unit = Selling price - Variable costs and expenses

	Economy	Standard	Deluxe
Contribution margin per unit	$17 ($36 - $19)	$36 ($60 - $24)	$64 ($120 - $56)

2.

Tanek should produce Deluxe product because contribution margin per unit is the highest.

3.

Contribution margin per unit of limited resources = Contribution margin per unit / Machine hours

	Economy	Standard	Deluxe
Contribution margin per limited resouces	$34 ($17 / 0.5)	$45 ($36 / 0.8)	$40 ($64 / 1.6)

4.

The additional time should be used to produce the Standard product because contribution margin per limited resouces is the highest.