Question

E7-11 Making Decisions Involving Constrained Resource [LO 7-2,7-7] Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows: Product B $ 45 Product A $ 35 Product C $ 75 Sales price Variable costs per unit Fixed costs per unit Required number of labor hours 17 21 5 2.00 32 1.25 2.50 Cordova currently is limited to 40,000 labor hours per month. Required: Assuming an infinite demand for each of Cordova's products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal place.) Contribution Margin Product A CM per DL Hour Product B CM per DL Hour Product C CM per DL Hour Which product would be Cordova's first choice to produce? Product C OProduct A OProduct B

Answer 1

Solution

	Contribution margin
Product A	$     14.40	CM Per DL Hour
Product B	$     12.00	CM Per DL Hour
Product C	$     17.20	CM Per DL Hour

Requirement 2

The first choice would be

Product C.

Product c is selected due to highest contribution margin per limited resource.

Working

Contribution Per Direct labor hour calculation	Product
	A	B	C
Contribution margin per unit (A)	$     18.00	$     24.00	$            43.00
DL hour per unit                           (B)	1.25	2	2.5
Contribution per DL Hour        (A/B)	$     14.40	$     12.00	$            17.20