Question

Darren Company produces three products with the following costs and selling prices: Selling price per unit Variable costs per unit Contribution margin per unit Direct labor hours per unit Machine hours per unit Product X Y $200 $96 120 48 $ 80 $48 2 57 Z $115 69 $ 46 Nt If Darren has a limit of 23,200 direct labor hours but no limit on units sold or machine hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is: Multiple Choice O Z, Y, X O X,Z,Y. O ) Y, Z, X. O - X, Y, Z.

Answer 1

The answer is “Y, Z, X” (i.e. the 3^rd option).

Calculations and explanation:

Here we will compute contribution margin per direct labor hour for each product.

		x	y	z
i	Contribution margin per unit	80	48	46
ii	Direct labor hours per unit	4	2	2
iii = i/ii	Contribution margin per unit of labor hour	20	24	23

Thus Y has the highest, followed by Z and X has the lowest margin.