Question

Problem 19-4A

Tanek Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Tanek is currently operating at full capacity with limited machine time.

Sales and production information relevant to each model follows.

Problem 19-4A Tanek Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Tanek is currently operating at full capacity with limited machine time. Sales and production information relevant to each model follows. Product Economy $31 Selling price Variable costs and expenses Machine hours required Standard Standard $51 $20 0.8 Deluxe $102 $47 1.6 $16 Calculate contribution margin per unit. Product Standard Economy Deluxe Contribution margin per unit Ignoring the machine time constraint, which single product should Tanek Industries produce? What is the contribution margin per unit of limited resource for each product? (Round answers to 2 decimal places, e.g. 10.50.) Economy Standard Deluxe Contribution margin per limited resource If additional machine time could be obtained, the additional time should be used to produce the product.

Answer 1

Contribution Margin per Unit 1) Product Economy Deluxe Standard Selling Price Less: Variable cost and expenses Contribution margin per unit 51 $ 102 31 (20) $ (47) (16) $ 31 $ $ 15 55 Contribution Margin = Selling price- Variable cost per unit 2) Tanek Industries shold produce Deluxe Product, as it gives highest contribution margin per unit when compared with other products Contribution Margin per Unit of limited source for each product 3) Product Economy 31 $ Deluxe Standard Selling Price Less Variable cost and expenses Contribution margin per unit Machine Hours required Contribution per machine hour 51 $ $ 102 (16) $ (20) (47) $ 15 31 55 0.8 0.5 1.6 38.75 34.38 30 ($ 15/0.5) ($ 31/ 0.8)($55/1.6)

If additional time obtained, the additional time should be used to produce the Standard Product Standard Product gives highest contribution margin per unit of limited source (i.e machine hours) Hence additional time is to be used to produce Standard Product 4)