Question

Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost and revenue data pertaining to each product are as follows. Android $100 Bio- Mutant $64 24 Cyclops $125 60 Selling price Direct labor Direct materials Variable overhead 48 9 16 9 At the present time, demand for each of the company's products far exceeds its capacity to produce them. Thus, management is trying to determine which of its games to concentrate on next week in filling its backlog of orders. Gunst's direct labor rate is $12 per hour, and only 1,000 hours of direct labor are available each week. Determine the maximum total contribution margin the company can make by its best use of the 1,000 available hours. (Do not round intermediate calculations.) Total contribution margin

Answer 1

Sol. Android Bio-Mutant. Cyclobes $100 $119 I $125 Particula Selling PricePerUnit lesso valiabele Cosos Birea labor Direct Materiaal's Variable Overhead Contribution Margin per unit Direct labor hours per unit $(48) | $(24)| $660) $(9) $68) $(16) $69) 1 $36 1 $83 $40 1 4 1 2 Contribution Margin PerDirect labor hour $9 $41.5 | $8 To maximize its total Contribution Margin, the Company should produce and sell the product with the highest Contribution margin per direct labor hour. As shown above the product "Bio-Mutant" have highest Courribution margin Per direct labor houre with 1000 direct labor hours available, the Company Can produce a total of 500 "Bio - Mutant Game - Total Direct labor hour Available - 2 houx per Unit 1.000 => 500

Thus, its totaul Contribution Margin will be - Total Duitsof game x Contribution Margin beer vuit 500 games & $83 $ 41,500 Working Notes Direct labor hours per Unit as e Direa labor Cost per unit Direct labor Rake lover hour Android - $48. $12 4 hours per unit $24 $12 2 hours per Unit Bio-Mutant - С Яс ops = 666 - $12 5 hours per want

Contribution Marrgin per Direct labor hour =) Contribution Margin four unit Direct labor hour four mit Android = _ $ 36 4 hours - - Bio-Mutauit $9 per hour $ 83 2 hours $41.5 per Direct labor hour $ 40 5 hours $8 per Direct labor hour Cyclops - e