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A company manufactures three products, A, B, and C. The following information is available about the products on a per unit basis:


A B C
Sales price $65.50 $57.50 $75.25
Total variable cost 28.85 26.5 38.95
Direct material cost 11.25 8.9 22.75
Machine hours 4.65 6.3 5.9

How much will contribution margin be if the company has 1,500 machine hours and produces only the most profitable product?

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Zviko

Answer:

Hi the demand for each  product for this question is missing, however, i have provided step by step approach to solving the problem below .

Explanation:

First Calculate the contribution per unit of each product

                                                        A                           B                            C

Sales price                                  $65.50                $57.50                  $75.25

Less Total variable cost            ($28.85)              ($26.50)                ($38.95 )

Less Direct material cost            ($11.25)                ($8.90)                 ($22.75)

Contribution                                $25.40                 $22.10                   $13.25

Calculate the contribution per limiting factor of each product and rank the products

contribution per limiting factor = contribution per unit ÷ quantity per limiting factor per unit

                                                        A                           B                            C

Contribution                                $25.40                 $22.10                   $13.25

Quantity of limiting factor             4.65                      6.3                          5.9

Contribution per limiting factor   5.46                      3.51                        2.25

Ranking                                            1                           2                             3

Allocate the limiting factor according to the limiting factor

The company will on produce Product A as this is the most profitable.

Contribution =  $25.40

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