Question

C. Lalu d. Determine the sales level in dollars for each division at the break-even pull E6.11 (LO 3), AN Mars Company manufactures and sells three products. Relevant per unit data conce ing each product are given below. A $9 $3 Product B $12 $10 C $15 $12 Selling price Variable costs and expenses Machine hours to produce 2 Instructions a. Compute the contribution margin per unit of limited resource (machine hours) for each product. b. Assuming 3,000 additional machine hours are available, which product should be manufactured? c. Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.

Answer 1

a) Compute the contribution margin per unit of limited resource (machine hours) for each product. (Round contribution margin per unit to 2 decimal places, e.g. 1.25.)
	Product A	Product B	Product C
Selling price	$9	$12	$15
Variable costs and expenses	$3	$10	$12
Contribution margin per unit (a)	$6	$2	$3
Machine hours required (b)	2	1	2
Contribution margin per unit of limited resource (a) ÷ (b)	$3	$2	$2
b) Assuming 3,000 additional machine hours are available, which product should be manufactured?
Product A should be manufactured because it results in the highest contribution margin per machine hour.
c)
(1)  Divided equally among the  products.
	Product A	Product B	Product C
Machine hours (a) 3000 ÷ 3	1000	1000	1000
Contribution margin per unit of limited resource (b)	$3	$2	$2
Total contribution margin [(a) x (b)]	$3,000	$2,000	$1,500
The total contribution margin =	$6,500
(2)  Allocated entirely to the product
Machine hours (a)	3000
Contribution margin per unit of limited resource (b	$3
Total contribution margin [(a) x (b)]	$9,000