In: Accounting
Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost and revenue data pertaining to each product are as follows: |
Android | Bio-Mutant | Cyclops | |||||||
Selling price | $ | 100 | $ | 55 | $ | 125 | |||
Direct labor | 48 | 24 | 60 | ||||||
Direct materials | 9 | 8 | 16 | ||||||
Variable overhead | 7 | 4 | 9 | ||||||
At the present time, demand for each of the company's products far exceeds its capacity to produce them. Thus, management is trying to determine which of its games to concentrate on next week in filling its backlog of orders. Gunst's direct labor rate is $12 per hour, and only 1,000 hours of direct labor are available each week. |
Determine the maximum total contribution margin the company can make by its best use of the 1,000 available hours. (Do not round intermediate calculations.) |
Additional Units produced and sold for Bio Mutant (1000/2)=500 |
Maximum contribution will; be =$ 9500
Sales | $ 27,500.00 |
Variable cost per unit (500 x 36) | $ 18,000.00 |
Contribution margin | $ 9,500.00 |
Working
the unit that gives highest contribution margin per limited resourse should be produced.
Android | Bio mutant | Cyclops | |
Labor cost | 48 | 24 | 60 |
Labor rate | 12 | 12 | 12 |
Labor hours per unit | 4 | 2 | 5 |
Statement of ranking indicating which product to produced first, second and third | |||
Product | |||
Android | Bio mutant | Cyclops | |
Sales price per unit | $ 100.00 | $ 55.00 | $ 125.00 |
Variable cost per unit | $ 64.00 | $ 36.00 | $ 85.00 |
Contribution margin per unit | $ 36.00 | $ 19.00 | $ 40.00 |
Labor hour per unit | 4.00 | 2.00 | 5.00 |
Contribution margin per Labor hour | $ 9.00 | $ 9.50 | $ 8.00 |
Ranking | II | I | III |