Question

Logan Company can sell all of the standard and premier products they can produce, but it has limited production capacity. It can produce 8 standard units per hour or 5 premier units per hour, and it has 39,000 production hours available. Contribution margin per unit is $20 for the standard product and $26 for the premier product. What is the most profitable sales mix for Logan Company?

Multiple Choice

• 0 standard units and 195,000 premier units.

• 126,750 standard units and 24,375 premier units.

• 312,000 standard units and 0 premier units.

• 39,000 standard units and 79,219 premier units.

• 79,219 standard units and 145,488 premier units.
  

  Pinkin Inc. needs to determine a price for a new phone model. Pinkin desires a 20% markup on the total cost of the phone. Pinkin expects to sell 44,000 phones. Additional information is as follows:

  Variable product cost per unit	$	77
  Variable administrative cost per unit		65
  Total fixed overhead		96,000
  Total fixed administrative		80,000

  
  
  Using the total cost method what price should Pinkin charge?

  Multiple Choice

• $167.07

• $175.20

• $146.07

• $162.30

• $174.00

Answer 1

Solution:

(Amount in $)

Part A

3rd Option to produce 312,000 Standard units and 0 Premier units

Explanation:

Profitable sale mix foe the company is determined as follows

Step 1: Find out the contribution per production hour. Production hour is used here because production hour is limiting factor (refer note 1)

Particular	Standard units	Premier units
Contribution per unit (A)	20	26
Maximum units produced per hour (B)	8	5
Contribution per hour (A*B)	160	130

Step 2. choose products that provide the highest contribution to limiting factors. In the present case, the Standard product should be selected. Hence the company should first apply maximum production hours toward standard units which can produce the highest contribution subject to the ability to sell or demand the product.

Note:

1. As the question is silent about the number of units the company can sell hence assumed whatever units the company produces is able to sell in the market.

Part B:

The second Option $ 175.2 is the correct answer.

Explanation:

Price of the product as per Total Cost method

Particular	Amount
Variable product cost per unit (44,000 Unit * 77)	3,388,000
Variable administrative cost per unit (44,000 * 65)	2,860,000
Total fixed overhead	96,000
Total fixed administrative	80,000
Total Cost (A)	6,424,000
Desires a 20% markup(B)	1,284,800
Total Price for 44000 units (A+B) = C	7,708,800
Total Expected sale in units = D	44,000
Price of Product per unit (C/D)	175.20

Note:

1. The total cost method is also called Full-cost pricing.

2. Under this method, the total cost associated with the product is added and markup is added over cost to determine the price of the product.