Question

Fahringer Corporation makes three products that use compound W, the current constrained resource. Data concerning those products appear below: BU Selling price per unit Variable cost per unit Centiliters of compound W $104.00 $ 82.02 1.60 XS $528.18 $429.69 9.60 QR $558.12 $419.99 9.80 Rank the products in order of their current profitability from most profitable to least profitable. In other words. rank the products in the order in which they should be emphasized. (Round your intermediate calculations to 2 decimal places.) OBJ,QRXS QR,BJ,XS O QRXS,BJ O XS,BJ,QR

Answer 1

Fahringer Corporation :

Fahringer Corporation makes three products, Ranking the products from most profitabile to least profitabile. By using the contribution margin we are raking the products because the same company producing all three products.

Contribution margin = (selling price per unit - variable cost per unit)/ selling price per unit

contribution margin:

Product BJ = (104-82.02)/104 = 21.13 %

Product XS = (528.18-429.69)/528.18 = 18.65 %

Product QR = (558.12-419.99)/558.12 = 24.75%

Most profitabile product = QR (higher contribution margin)

Least profitabile product = XS (least contribution margin)

Ranking of the products = QR, BJ, XS

hence option "B" is correct.