Question
In: Accounting
Chastain Corporation produces three products, with costs and selling prices as follows: Product A Product B...
Chastain Corporation produces three products, with costs and selling prices as follows:
|
Product A |
Product B |
Product C |
|||||||||||||||||
|
Selling price per unit |
$ |
30 |
100 |
% |
$ |
20 |
100 |
% |
$ |
15 |
100 |
% |
|||||||
|
Variable costs per unit |
18 |
60 |
% |
15 |
75 |
% |
6 |
40 |
% |
||||||||||
|
Contribution margin per unit |
$ |
12 |
40 |
% |
$ |
5 |
25 |
% |
$ |
9 |
60 |
% |
|||||||
A particular machine is the bottleneck. On that machine, 3 machine hours are required to produce each unit of Product A, 1 hour is required to produce each unit of Product B, and 2 hours are required to produce each unit of Product C.
Required:
- Prepare an analysis of the contribution margin per unit of the constrained resource.
- b. Rank the products from the most profitable to the least profitable use of the constrained resource
Solutions
Expert Solution
Correct Answer:
|
Product |
||||
|
A |
B |
C |
||
|
A |
Sales price per unit |
$ 30.00 |
$ 20.00 |
$ 15.00 |
|
B |
Variable cost per unit |
$ 18.00 |
$ 15.00 |
$ 6.00 |
|
C=A-B |
Contribution margin per unit |
$ 12.00 |
$ 5.00 |
$ 9.00 |
|
D = 1/no. of machines produced in 1 hour |
Machine hour per unit |
0.33 |
1.00 |
0.50 |
|
E =C/D |
Contribution margin per machine hour |
$ 36.00 |
$ 5.00 |
$ 18.00 |
|
Ranking |
I |
III |
II |
|
End of Answer.
Thanks
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