Duo Company manufactures two products, Uno and Dos. Contribution margin data follow.
Uno | Dos | ||||||
Unit sales | $ | 13.00 | $ | 31.00 | |||
Less variable cost: | |||||||
Direct material | $ | 7.00 | $ | 5.00 | |||
Direct labor | 1.00 | 6.00 | |||||
Variable overhead | 1.25 | 7.50 | |||||
Variable selling and administrative cost | 0.75 | 0.50 | |||||
Total variable cost | $ | 10.00 | $ | 19.00 | |||
Unit contribution margin | $ | 3.00 | $ | 12.00 | |||
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Duo company’s production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn the same wage rate.
Required:
2. Which of Duo Company’s products is most profitable?
Contribution margin is calculated by deducting total variable cost from the sales.As contribution margin change by occurring any change in level of sales or total variable cost or both. By deducting the total fixed cost from the contribution margin we get operating profit.
Duo Company manufactures two products, Uno and Dos. Contribution margin data follow. Uno Dos Unit sales...
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