Question

Farris Company reported the following information for its two products:

	Product X				Product Y
Selling price per unit	$	110			$	120
Variable cost per unit		66				54

Due to labor constraints, demand for each of the products is greater than its supply. Product X requires one hour of labor to produce and product Y requires three hours of labor to produce. Which of the following statements is true?

• Product X should be produced and sold because it has a lower cost than Product Y.

• Product X should be produced and sold because it provides a higher contribution margin per labor hour than Product Y.

• Product Y should be produced and sold because it provided a higher contribution margin per unit than Product X.

• Product Y should be produced and sold because it provides more revenue than Product X.

Answer 1

Product X should be produced and sold because it provides a higher contribution

Contribution margin per labour hour:

Product x has 44 and Product Y has only 22.