Question

Waterways Continuing Problem 06 (Part 2)

Waterways packages some of its products into sets for home installations. One set (small) sells for $75 with variable costs of production for the set at $51. Another set (large) sells for $147 with variable costs of $101. The parts for the $75 set take 8 machine hours to produce. The parts for the $147 set take 20 machine hours to produce.

Given the information above, and assuming all of the package sets produced can be sold each month, illustrate the best use of machine hours. (Round answers to 2 decimal places, e.g. 5.25.)

		Small Set			Large Set
Contribution margin per unit of limited resource		$			$

The small setlarge set is the best use of a limited resource.

Answer 1

Solution

	Small set	Large set
Contribution margin per limited resource	$                   3.00	$                        2.30

The Small set is the best use of Limited resource

Working

	Small set	Large set
Sales price	$                 75.00	$                   147.00
Variable cost	$                 51.00	$                   101.00
Contribution margin per unit	$                 24.00	$                      46.00
Machine Hours required	8.00	20.00
Contribution margin per limited resource	$                   3.00	$                        2.30