Banner Company produces three products: A, B, and C. The sellingprice, variable costs, and contribution margin for one unit of eachproduct follow:
Product
A B C Selling price $ 120 $ 110
$ 160
Variable costs: Direct materials 75.00 41.50 108.00 Direct labor 7.50 25.00 10.00 Variable manufacturing overhead 1.50 5.00 2.00
Total variable cost 84.00 71.50 120.00
Contribution margin $ 36.00 $ 38.50 $ 40.00
Contribution margin ratio 30 % 35 % 25 %
Due to a strike in the plant of one of its competitors, demand forthe company%u2019s products far exceeds its capacity to produce.Management is trying to determine which product(s) to concentrateon next week in filling its backlog of orders. The direct laborrate is $5 per hour, and only 3,290 hours of labor time areavailable each week.
Required:
1. Compute the amount of contribution margin that will be obtained perhour of labor time spent on each product. (Round yourintermediate calculations and final answers to 2 decimalplaces.)
A B C Contribution margin per labor hour $ $ $
2. Which orders would you recommend that the company work on nextweek%u2014the orders for product A, product B, or product C?
Product A Product B Product C
3. By paying overtime wages, more than 3,290 hours of direct labortime can be made available next week. Up to how much should thecompany be willing to pay per hour in overtime wages as long asthere is unfilled demand for the three products? (Round yourintermediate calculations and final answers to 2 decimalplaces.)
Maximum amount $ per hour
Banner Company produces three products: A, B, and C. The sellingprice, variable costs, and contribution margin for one unit of eachproduct follow: |
Product | |||||||||||
| A | B | C | |||||||||
| Selling price | $ | 120 | $ | 110 | $ | 160 | |||||
| Variable costs: | |||||||||||
| Direct materials | 75.00 | 41.50 | 108.00 | ||||||||
| Direct labor | 7.50 | 25.00 | 10.00 | ||||||||
| Variable manufacturing overhead | 1.50 | 5.00 | 2.00 | ||||||||
| Total variable cost | 84.00 | 71.50 | 120.00 | ||||||||
| Contribution margin | $ | 36.00 | $ | 38.50 | $ | 40.00 | |||||
| | | | | | | | | | | | |
| Contribution margin ratio | 30 | % | 35 | % | 25 | % | |||||
| | | | | | | | | | | | |
Due to a strike in the plant of one of its competitors, demand forthe company%u2019s products far exceeds its capacity to produce.Management is trying to determine which product(s) to concentrateon next week in filling its backlog of orders. The direct laborrate is $5 per hour, and only 3,290 hours of labor time areavailable each week. |
| Required: |
| 1. | Compute the amount of contribution margin that will be obtained perhour of labor time spent on each product. (Round yourintermediate calculations and final answers to 2 decimalplaces.) |
| A | B | C | |
| Contribution margin per labor hour | $ | $ | $ |
| 2. | Which orders would you recommend that the company work on nextweek%u2014the orders for product A, product B, or product C? | ||||||
|
| 3. | By paying overtime wages, more than 3,290 hours of direct labortime can be made available next week. Up to how much should thecompany be willing to pay per hour in overtime wages as long asthere is unfilled demand for the three products? (Round yourintermediate calculations and final answers to 2 decimalplaces.) |
| Maximum amount | $ per hour |
