Question

35. Contribution Margin with Resource Constraints. Lassen, Inc. produces two different products that! have the following price and cost characteristics. Premium Standard Selling price per unit 5400 $200 Variable cost per unit) $320 S150 Management believes that pushing sales of the Premium product would maximize company profits because of the high contribution margin per unit for this product. However, only 50,000 labor hours are available each year, and the Premium product requires 4 labor hours per unit while the Standard model requires 2 labor hours per unit. The company sells everything it produces Required: a. Calculate the contribution margin perunit of constrained resource for each product, b. Which product would lassen prefer to sell to maximize overall company profit? Explain 36. Target Profit Measured in Units (with Taxes). Plumbing Products, Inc, has annual fixed costs totaling $3.000.000 and variable costs of $350 per unit. Each unit of product is sold for $500. Assume a tax rate of 20 percent Required: Use the three steps described in the chapter to determine how many units must be sold to earn an annual proht of $100.000 after taxes (Round to the nearest unit) 37. Target Profit Measured in Sales Dollars (with Taxes). Plumbing Products has annual fixed costs totaling $3,000,000 and variable costs of $350 per unit. Each unit of product is sold for 5500. Assume a tax rate of 20 percent (these data are the same as the previous exercise) Required: Use the three steps described in the chapter to determine the sales dollars required to earn an annual probit of $150.000 after taxes

Answer 1

Answer to Q#35 (First question in the list): NOTE: Selling price per unit Variable expenses per unit Contribution margin per unit Labor hour required per unit Contribution margin per labor hour Premium $400 $320 $80 4 Standard $200 --> (a) $150 --> (b) $50 --> (c) = (a) - (b) 2 --> (d) $25 --> (c)/(d) As the available labor hours is limited, constrained resource here is labor hour. 2) To maximuze firm's overall profit, when total available labor hours is restricted to 50,000 only, constrained resource shall be utilized to satisfy demand for Standard fully first and then if balance is available, it must be used to satisfy demand for Premium as Premium yields lower contribution margin per labor hour (constrained resource) than Standard.