Question

Springer Products manufactures three different product​ lines, Model​ X, Model​ Y, and Model Z. Considerable market demand exists for all models. The following per unit data​ apply:

	Model X	Model Y	Model Z
Selling price	$57	$70	$76
Direct materials	6	6	6
Direct labor ​($ 12$12 per​ hour)	12	12	24
Variable support costs ​($ 8$8 per machineminus−​hour)	8	16	16
Fixed support costs	12	12	12

If there is excess​ capacity, which model is the most profitable to​ produce?

A. Model X

B. Model Y

C. Model Z

D. Both Model X and Model Y have same and highest profitability

Answer 1

	Model X	Model Y	Model Z
Selling price	$                     57	$                  70	$                       76
Variable Cost	$                     26	$                  34	$                       46
Contribution Margin per unit	$                     31	$                  36	$                       30
Machine hours per unit	1	2	2
Contribution Margin per hour	$                     31	$                  18	$                       15

Since contribution margin per machine hour for Model X is highest,
Answer is a. Model X is most profitable to produce