SuperToys has 4,000 production hours available for January for three of its products: Regular boat, Deluxe boat, Super-deluxe boat. The rate of production (i.e. how many units can be produced per hour), the market demand, selling price and cost data for the three products are provided in the following table: | ||||||||
Regular boat | Deluxe boat | Super-Deluxe boat | ||||||
Demand for January (in units) | 100,000 | 78,000 | 30,000 | |||||
Unit selling price | $40 | $70 | $90 | |||||
Unit variable cost | $20 | $45 | $40 | |||||
Unit Contribution Margin | $20 | $25 | $50 | |||||
Rate of production (units of production per hour) | 50 | 40 | 25 | |||||
With the available production hours, SuperToys can't fill the entire market demand. Which product should be given top priority in production schedule for January? |
A. |
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B. |
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D. |
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E. |
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Answer: E. Regular boat
Explanation:
Regular boat | Deluxe boat | Super-Deluxe boat | |
Demand for January (in units) | 100,000 | 78,000 | 30,000 |
x Unit selling price | $40 | $70 | $90 |
Total Sales (A) | $4,000,000 | $5,460,000 | $2,700,000 |
Demand for January (in units) | 100,000 | 78,000 | 30,000 |
x Unit variable cost | $20 | $45 | $40 |
Total Variable Cost (B) | $2,000,000 | $3,510,000 | $1,200,000 |
Contribution margin (A-B) | $2,000,000 | $1,950,000 | $1,500,000 |
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Regular boat product should be given top priority in production schedule for January since it has higher contribution margin
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