Question

Four products are manufactured by MNO:

maxi midi mini micro

Selling price per unit 600 400 300 250

variable labor cost per unit(40$/hour) 250 120 140 90

variable material cost per unit 275 250 100 110

Part 1: Each of the four products takes two production hours. Assuming production hours as the overall capacity constraint, the ranking order of products for MNO to maximize its profitability is:

a. maxi, midi, mini , micro

b. maxi, mini, micro, midi

c. micro, mini, maxi , midi

d. micro, midi, maxi, mini

Applying the theory of constrains and a throughput accounting approach, and assuming labor to be the bottleneck constraint, the ranking order of products for MNO to maximize its profitability within the labor constraint is:

a. maxi,midi,mini, micro

b. micro, mini, maxi, midi

c. maxi, mini, micro, midi

d. micro, midi, maxi, mini

Answer 1

Part 1

	Maxi	Midi	Mini	Micro
Selling Price per unit	$       600.00	$         400.00	$      300.00	$      250.00
Variable Labor cost per unit	$       250.00	$         120.00	$      140.00	$        90.00
Variable Material cost per unit	$       275.00	$         250.00	$      100.00	$      110.00
Contribution Margin per unit	$         75.00	$            30.00	$         60.00	$        50.00
Production hours per unit	2	2	2	2
Contribution Margin per production hour	$         37.50	$            15.00	$         30.00	$        25.00
Rank	1	4	2	3

Answer is b. maxi, mini, micro, midi

Part 2

	Maxi	Midi	Mini	Micro
Selling Price per unit	$       600.00	$         400.00	$      300.00	$      250.00
Variable Labor cost per unit	$       250.00	$         120.00	$      140.00	$        90.00
Variable Material cost per unit	$       275.00	$         250.00	$      100.00	$      110.00
Contribution Margin per unit	$         75.00	$            30.00	$         60.00	$        50.00
Labor hours per unit	6.25	3	3.5	2.25
Contribution Margin per labor hour	$         12.00	$            10.00	$         17.14	$        22.22
Rank	3	4	2	1

Answer is b. micro, mini, maxi, midi