Question

Dalton Inc. produces and sells three products. Unit data concerning each product is shown below.

		Product
		D		E		F
Selling price		$201.20		$310.50		$255.80
Direct labor costs		33.80		100.75		41.60
Other variable costs		105.00		78.00		147.00

The company has 2,300 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $13.

Determine the number of direct labor hours per unit. (Round answers to 2 decimal places, e.g. 52.75.)

		Direct labor
Product D			hours per unit
Product E			hours per unit
Product F			hours per unit

Answer 1

Compute the direct labor hours per unit using spreadsheet as follows:

The result of the above spreadsheet is as follows:

Compute the contribution margin per labor hour of each product, using the spreadsheet as follows:

The result of the above spreadsheet is as follows:

Hence, product D has the highest contribution margin per labor hour. Therefore, given the constraint of 2,300 labor hours, product D should be produced.

Compute the number of units of product D which will be produced as follows:

Hence, 885 units of product D will be produced.

Compute the total contribution margin from product D using the equation as follows:

Hence, the total contribution margin from product D is $54,870.