Question

Modern Toy Company produces two models of toy cars, Top car and Juu car. Important information is given as follows:-

                                                                                                Top car                        Juu car

Selling price per unit                                                                    100                               70

Costs per unit:

Direct material costs                                                                      28                               13

Direct manufacturing labour costs                                                 15                               25

Variable manufacturing overhead*                                                25                               12

Fixed manufacturing overhead*                                                    10                                 5

Marketing costs (all variable)                                                         14                               10

Total costs                                                                                     92                               65

Net operating income                                                                   8                                  5

Machine hour per unit of toy car                                                    2 hours                        1 hour

            * Variable and fixed manufacturing overheads are

               allocated on the basis of machine hours

Required:

1. Calculate the contribution per unit per each car model                                     (10 Marks)

2. Calculate the contribution per unit per each car of the constraining resource. (4 Marks)

3. Which product should be produced? Explain your answer.                             (6 Marks)

                                                                                                                   (Total marks: 20)

Answer 1

1		Top car		Juu car
	Sales revenue	100		70
	Less: Variable cost
	Direct material	28		13
	Direct manufacturing labour	15		25
	Variable manufacturing overhead	25		12
	Contribution Margin	32		20
2		Top car		Juu car
	Sales revenue	100		70
	Less: Variable cost
	Direct material	28		13
	Direct manufacturing labour	15		25
	Variable manufacturing overhead	25		12
	Contribution Margin	32		20
	Machine hour per unit	2 hours		1 hours
	Contribution Margin per unit per machine hour	16		20
	Rank	2		1
3	Juu car should be produced, as it have higher contribution margin per unit per machine hour
	compare to Top car