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 $72 $144 $23 $29 $66 0.8 1.6 Selling price Variable costs and expenses Machine hours required $43 0.5 Calculate contribution margin per unit. Product Standard Economy Deluxe Contribution margin per unit $ e Textbook and Media Ignoring the machine time constraint, which single product should Tanek Industries produce? eTextbook and Media 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 $ e Textbook and Media If additional machine time could be obtained, how should the additional time be used? The additional time should be used to produce the product.

Answer 1

	Economy	Standard	Deluxe
Selling price per unit (i)	$43	$72	$144
Variable cost per unit (ii)	$23	$29	$66
Contribution margin per unit (iii) = (i) - (ii)	$20	$43	$78
Machine hours required per unit (iv)	0.5	0.8	1.6
Contribution margin per Machine hour (iii)/(iv)	20/0.5 = $40	43/0.8 = $53.75	78/1.6 = $48.75

	Economy	Standard	Deluxe
Contribution margin per unit	$20	$43	$78

Tanek Industries should produce Deluxe model since it has the highest Contribution margin per unit

	Economy	Standard	Deluxe
Contribution margin per Machine hour	$40	$53.75	$48.75

The additional time obtained should be used to produce Standard model since it has the highest Contribution margin per Machine hour.

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