Assuming direct labor is a variable cost | |||||||
1 | Contribution margin per unit: | ||||||
Purchased WVD drums |
Manufactured WVD drums |
Manufactured Bike frames |
|||||
Selling price | a | 225 | 225 | 334 | |||
Less; Variable costs | |||||||
Materials | 195 | 52.1 | 110.8 | ||||
Direct labor | 0 | 7.4 | 59.2 | ||||
Variable manufacturing overhead | 0 | 1.35 | 1.9 | ||||
Variable selling and administrative | 0.75 | 0.75 | 3.2 | ||||
Total variable cost | b | 195.75 | 61.6 | 175.1 | |||
Contribution margin per unit | (a-b) | 29.25 | 163.4 | 158.9 | |||
Contribution margin per welding hour: | |||||||
Manufactured WVD drums |
Manufactured Bike frames |
||||||
Contribution margin per unit | a | 163.4 | 158.9 | ||||
Welding hours per unit | b | 0.4 | 0.5 | ||||
Contribution margin per welding hour (a/b) | 408.5 | 317.8 | |||||
Ranking of alternatives based on contribution margin per hour: | |||||||
Manufactured WVD drums |
Manufactured Bike frames |
||||||
Contribution margin per welding hour (a/b) | 408.5 | 317.8 | |||||
Rank | 1 | 2 | |||||
Preference should be given to manufacturing WDV drums | |||||||
Total hours available=2380 hours | |||||||
Demand for WDV drums=7375 drums | |||||||
Welding hours per unit=0.40 | |||||||
WDV drums using 2380 hours=2380/0.40=5950 drums | |||||||
Rest of the drums can be purchased from outside | |||||||
Drums to be purchased=7375-5950=1425 drums | |||||||
No bike frame can be produced since, there is no welding hours available | |||||||
Purchased | Manufactured | ||||||
WVD drums | 1425 | 5950 | |||||
Bike frames | 0 | ||||||
Increase in net operating income: | |||||||
Units |
Contribution margin per unit |
Total contribution |
|||||
Manufactured WVD drums |
5950 | 163.4 | 972230 | ||||
Purchased WVD drums |
1425 | 29.25 | 41681.25 | ||||
Total | 1013911.25 | ||||||
Less: Current contribution margin | 5475 | 116 | 635100 | ||||
Increase in net operating income | 378811 | ||||||
2 | Assuming direct labor is a fixed cost, | ||||||
Contribution margin per unit: | |||||||
Purchased WVD drums |
Manufactured WVD drums |
Manufactured Bike frames |
|||||
Selling price | a | 225 | 225 | 334 | |||
Less; Variable costs | |||||||
Materials | 195 | 52.1 | 110.8 | ||||
Direct labor | 0 | 0 | 0 | ||||
Variable manufacturing overhead | 0 | 1.35 | 1.9 | ||||
Variable selling and administrative | 0.75 | 0.75 | 3.2 | ||||
Total variable cost | b | 195.75 | 54.2 | 115.9 | |||
Contribution margin per unit | (a-b) | 29.25 | 170.8 | 218.1 | |||
Contribution margin per welding hour: | |||||||
Manufactured WVD drums |
Manufactured Bike frames |
||||||
Contribution margin per unit | a | 170.8 | 218.1 | ||||
Welding hours per unit | b | 0.4 | 0.5 | ||||
Contribution margin per welding hour (a/b) | 427 | 436.2 | |||||
Ranking of alternatives based on contribution margin per hour: | |||||||
Manufactured WVD drums |
Manufactured Bike frames |
||||||
Contribution margin per welding hour (a/b) | 427 | 436.2 | |||||
Rank | 2 | 1 | |||||
Preference should be given to manufacturing bike frames | |||||||
Total hours available=2380 hours | |||||||
Demand for Bike frames=1980 frames | |||||||
Welding hours per unit=0.50 | |||||||
Welding hours used for bike frames=1980*0.50=990 hours | |||||||
Balance welding hours available=2380-990=1390 hours | |||||||
Welding hours per unit for WVD drums=0.40 | |||||||
Drums can be produced=1390/0.40=3475 Drums | |||||||
Demand for WDV drums=7375 drums | |||||||
Rest of the drums can be purchased from outside | |||||||
Drums to be purchased=7375-3475=3900 drums | |||||||
Purchased | Manufactured | ||||||
WVD drums | 3900 | 3475 | |||||
Bike frames | 0 | 1980 | |||||
Increase in net operating income: | |||||||
Units |
Contribution margin per unit |
Total contribution |
|||||
Manufactured WVD drums |
3475 | 170.8 | 593530 | ||||
Purchased WVD drums |
3900 | 29.25 | 114075 | ||||
Bike frames produced | 1980 | 218.1 | 431838 | ||||
Total | 1139443 | ||||||
Less: Current contribution margin | 5475 | 116 | 635100 | ||||
Increase in net operating income | 504343 |
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,120 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,400 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,400 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,240 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,380 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical Industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2.380 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,220 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical Industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2.380 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,140 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...
TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,420 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding...