Question

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

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Answer #1

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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