Question

A rectly destroyed a substantial portion of Blossom Company's production capacity. It will be many months before capacity can be restored. During this period, demand for the firm's products will exced the company's ability to produce them. Par unit data on the firm's the major products is sammarized as follows: Product A B C Selling price $B4 05 $75 Variable 27 27 Fixed costs 15 1B 10 Operating profit $21 $50 --- $38 Fixed costs have been allocated to the products on the basis of the labour hour required to produce each product. The major capacity constraint is the availability of time on a processing machine. Each unit of Product A and Product requires 2 hours of processing on the machine, whers Product requires 3 hours Your is correct. Calculate contribution margin per hour for each product. (Round arwars to 2 decimal places, c.9. 15.25.) Contribution margin per hour 18.50 Product A Products 22.52 Product If demand for each of the products is greater than the fem's ability to meet that demand, which product should the firm produce fest? Droducts I enough capacity to produce two products, which product should be produced second Products BV SHOW SOLUTION SHOW AMGWER LINK TO TEXT LINK TO TEXT Your awer is correct. Assume that the firm has enough capacity to the demand of the two products you identified in previous part. If stimated demand for the rest product to be produced ex capacity by 1,050 units, what is the maximum amount the first would be willing to pay to increase capacity? Maximum amount the firm would be willing to pay 39,220 SHOW SOLUTION SHOW ANSWER LINK TO TOET LINK TO TEXT Your awer is incred. Try again. . Management adopted your plan from us parl. Shortly the strategically important com ested that the firm supply 550 units of Product D, which has been discontinuad but could be produced again if ned. Management was to meet the customer's request to maintain goodwill but want to know the cost before making the decision. In the past, Product D sold for $37, incurred 520 in variables, was allocated 54 of freed costs, and required 1.5 hours of processing on the machine. What is the opportunity cost of acting the order? (Round intermediate calculations to 2 decimal places, .9. 25.26 and final answer to decimal places, .g. 125.) Opportunity cost 5,9151 LINK TO TEXT LINK TO TEST TEXT

Answer 1

Opportunity cost if product D produced
Contribution margin per unit of product D	(37-20)	17
Contribution margin per hour for product D	17/1.5	11.33
Required Machine hours to produce Product D	(550*1.50)	825
Contribution margin lost for product B	(825*22.67)	18702.75
Contribution margin for product D	(825*11.33)	9347.25
Opportunity cost		9356
Note:
To produce product D, product B machine hour can be used as it has lesser contribution margin per hour