Castle Corp. produces three products, and is currently facing a labor shortage. The selling price, costs,...
Castle Corp. produces three products, and is currently facing a
labor shortage. The selling price, costs, and labor requirements of
the three products are as follows:
| Product A | Product B | Product C | ||||
| Selling price | $ | 74.00 | $ | 64.00 | $ | 60.00 |
| Variable cost per unit | $ | 59.00 | $ | 55.00 | $ | 54.00 |
| Direct labor hours per unit | 1.5 | 3 | 2 | |||
Castle has unlimited demand for all its products. Which product/s
should Castle Corp produce to maximize profit during the labor
shortage?
Product A only
Product B only
Products A and B
Products A, B, and C
Homework Answers
Correct answer---------Product A only
Working
| Statement of ranking indicating which product to produced first, second and third | |||
| Product | |||
| A | B | C | |
| Sales price per unit | $ 74.00 | $ 64.00 | $ 60.00 |
| Variable cost per unit | $ 59.00 | $ 55.00 | $ 54.00 |
| Contribution margin per unit | $ 15.00 | $ 9.00 | $ 6.00 |
| Labor hours per unit | 1.50 | 3.00 | 2.00 |
| Contribution margin per labor hour | $ 10.00 | $ 3.00 | $ 3.00 |
| Ranking | I | II | II |
Product A gives highest contribution per hour so in order to maximize profit only product A should be manufactured.
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