Question

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		Standard		Deluxe
Selling price		$35		$58		$115
Variable costs and expenses		$18		$23		$53
Machine hours required		0.5		0.8		1.6

Calculate contribution margin per unit.

		Product
		Economy		Standard		Deluxe
Contribution margin per unit		$		$		$

Ignoring the machine time constraint, which single product should Tanek Industries produce?                                                                       Deluxe, Economy, or Standard

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, how should the additional time be used?

The additional time should be used to produce the Standard, Deluxe, or Economy product.

Answer 1

Req 1.
Contribution margin per unit
			Economy	Standard	Deluxe
Selling price		35	58	115
Less: Variable expense per unit	18	23	53
Contribution margin per unit	17	35	62
Ignoring machine time, Tanek Industries should produce:	DELUXE
(as having highest contribution margin per unit)
Req 2.
Contribution margin per MH
			Economy	Standard	Deluxe
Selling price		35	58	115
Less: Variable expense per unit	18	23	53
Contribution margin per unit	17	35	62
Divide: MH required per unit	0.5	0.8	1.6
Contribution margin per MH	34	43.75	38.75
Ranking			Third	First	Second
Additional time should be used to produce:			STANDARD