Question

Johnson Company manufactures and sells three products. Relevant per unit data concerning each product are given below:

A B C

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Selling Price $8 $15 $20

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Variable costs and expenses $6 $13 $17

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Machine hours to produce 2 1 2

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-Compute the contribution margin per unit of limited resource (Machine hours) for each product.

Product A Product B Product C

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Contribution margin per unit of limited resources $ ? $ ? $ ?

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-Assuming 3,000 additional machine hours are available, which product should be manufactured? Product A, Product B or Product C?

-What is the total contribution margin if the additional hours are (1) divided equally amount the products, and (2) if they are allocated entirely to the product identified above

Total Contribution Margin

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(1) Divide equally among the product $ ?

(2) Allocate entirely to the product identified above $ ?

Answer 1

Answer is given below

Contribution Margin per unit of Limited resource Product A Product B Product C Selling price Variable Cost Contribution per Unit Machine hours Contribution per Machine hour $8.0 $15.0 $20.0 $6.0 $2.0 $13.0 $17.0 $2.0 $3.0 2 $1.0 $2.0 $1.5 Calculation of Contribution Product A Product B Product C $2.0 Total Contribution per Machine hour Ranking $1.0 $1.5 III Equally divided Hours allotted Equally Total Contribution Margin 1,000 1,000 $1,500 1,000 1. $1,000 $2,000 $4,500 Allotted to Highest ranked Product Hours Allotted Total Contribution Margin 2. 3,000 $6,000 $6,000