Question

1. Fast $, Inc produces silver and gold pendants. The data are as follows:

Silver                              Gold

Price	$30	$125
Material	8	35
Labor	5	73
Contribution Margin
Labor Hours Required	$0 .75	$1.00
Demand	100	75

Fixed Costs = $10,000; Labor hours available = 100

Are there enough labor hours to satisfy demand for both types?_____

1. Determine the contribution margin per labor hours for each

2. How many silver pendants and how many gold pendants would maximize profits? Prove your answer.

2. Given the following data, prove and explain whether the Red line of jewelry should be discontinued.

Sales                     $200,000

Variable Costs       125,000

Avoidable Fixed Costs     $80,000

Unavoidable Fixed Costs           $10,000

Answer 1

Contribution margin per DLH
			Silver	Gold
Selling price		30	125
Less: variable cost
Material			8	35
Labour			5	73
Contribution margin per unit	17	17
Divide: DLH per unit		0.75	1
Contribution margin per DLH	22.67	17
Ranking			First	Second
Req b.
Total DLH available			100
Less: DLH used in Silver (100*0.75)	75
Hours available for GOLD		25
Number of units of GOLD (25/1)		25
			Silver	Gold	Total
Number of units of Product	100	25
Sales revenue		3000	3125	6125
Less: variable cost
Material			800	875	1675
Labour			500	1825	2325
Contribution margin		1700	425	2125
Less: Fixed cost				10000
Net Income (Loss)				-7875
Req II
			Continue	Discontinue	Effect on icnome
Sales			200000	0	-200000
Less: variable cost		125000	0	125000
Contribution		75000	0	-75000
Avoidable fixed cost		80000	0	80000
Unavoidable fixed cost	10000	10000	0
Net income		-15000	-10000	5000
Net financial advantage of discontinuance is $ 5,000