Question

Wright, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

Product

C

D

E

  Selling price

$

85

$

65

$

95

  Variable costs

$

60

$

50

$

65

  Fixed costs

25

8

22

  Tapping machine time (minutes)

20

5

5

Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The tapping machine is the constraint, with only 2,700 minutes of tapping machine time available this week.

Calculate the contribution margin per minute for all three products

C

D

E

a-2.

Given the tapping machine constraint, which product should be emphasized?

b.	Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of tapping machine time? maximum amount per hour

Answer 1

1	C	D	E
Selling Price	85	65	95
Variable Cost	60	50	65
Contribution	25	15	30
Time requires	20	5	5
Contribution per minute	1.25	3	6
2. we have 2700 minutes of tapping machine, Product E is giving higher contribution
6/- Per minute, company should emphasize on product E
3 Company earning 6/- per minute in Product E if not filled up the demand
Maximum amount per hour can be pay by company (6*60) = 360