In: Accounting
1) | ||||
Produce H | Product Y | Product C | Total | |
Machine Hours Required = Hours per unit x Monthly Demand units | ||||
Machine type 1 | 180 | 315 | 180 | 675 |
Machine type 2 | 120 | 175 | 120 | 415 |
Machine Utilization Rate = Total machine hours required/ Total Capacity | ||||
Machine type 1 = 675/600 | 112.50% | |||
Machine type 2 = 415/500 | 83.00% | |||
Machine type 1 has the highest machine utilization rate and rate is above 100% so machine type 1 is the bottleneck/limiting factor . | ||||
2) | ||||
Produce H | Product Y | Product C | ||
Selling Price | $ 91.00 | $ 174.00 | $ 140.00 | |
Less: Variable Cost | $ 51.00 | $ 78.00 | $ 66.00 | |
Contribution Margin | $ 40.00 | $ 96.00 | $ 74.00 | |
Machine type 1 hour | 1.5 | 4.5 | 3 | |
Contribution Margin per hour | $ 26.67 | $ 21.33 | $ 24.67 | |
Ranking | 1 | 3 | 2 | |
Allocation of Machine Type 1 hours | ||||
Units | Hours | |||
Produce H | 120 | 180 | ||
Product C | 60 | 180 | ||
Hours Used | 360 | |||
Product Y (600 - 360) = 240/4.5 | 53.33 | 240 | ||
Hours Used | 600 | |||