Question

Hanson Corp produces three products, and is currently facing a labor shortage – only 3,090 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows:
Product A Product B Product C
Selling price $ 76.00 $ 56.00 $ 66.00
Variable cost per unit $ 48.00 $ 19.00 $ 39.00
Direct labor hours per unit 2.5 3.9 2.9


a.
What is the contribution margin per unit for each product?

Product A
Product B
Product C


b.
What is the contribution margin per direct labor hour for each product? (Round your answers to 2 decimal places.)

Product A
Product B
Product C


c.
Assume Hanson has unlimited demand for each product. Which product should Hanson focus on producing?

Product B
Product C
Product A

Answer 1

Answer and Explanation:

The computation is shown below:

a. Contribution margin per unit

As we know that

Contribution margin per unit = Selling price per unit - variable  cost per unit

Particulars                     Product A               Product B                Product C

Selling price per unit     $76                          $56                          $66

Variable cost per unit    $48                          $19                          $39

Contribution margin per unit      $28          $37                         $27

b. Contribution margin per direct labor hour for each product

Contribution margin per direct labor hour = Contribution margin per unit ÷ Direct labor hours per unit

Particulars                     Product A               Product B                Product C

Contribution margin per unit      $28          $37                         $27

Direct labor hours per unit           2.5           3.9                          2.9

Contribution margin per direct labor hour  $11.2  $9.49          $9.31

c. Based on the contribution margin per direct labor hour, the product that should be more focused is product A