Question

Grover Corp. manufactures three products, and is currently facing a labor shortage. The selling price, costs, and labor requirements of the three products are as follows: Product A Product B Product C Selling price $ 44.00 $ 18.00 $ 28.50 Variable cost per unit $ 28.00 $ 15.00 $ 27.00 Direct labor hours per unit 2.00 1.50 .50 In what order should Grover Corp. prioritize production of its products to maximize profit during the labor shortage

Answer 1

Answer:

A, C, B

Explanation:

Calculation to determine In what order should Grover Corp. prioritize production of its products to maximize profit during the labor shortage

Product A Product B Product C

Selling price $ 44.00 $ 18.00 $ 28.50

Less Variable cost per unit

$ 28.00 $ 15.00 $ 27.00

=Contribution margin per unit

$16.00 $3.00 $1.50

÷Direct labor hours per unit 2.00 1.50 .50

=Contribution margin per labor hour

$8.00 $2.00 $3.00

PRODUCT A=$16.00÷2.00

PRODUCT A=$8.00

PRODUCT B=$3.00÷1.50

PRODUCT B=$2.00

PRODUCT C=$1.50÷.50

PRODUCT C=$3.00

RANKING:

PRODUCT A=$8.00

PRODUCT C=$3.00

PRODUCT B=$2.00

Therefore based on the above calculation the order that Grover Corp.should prioritize production of its products to maximize profit during the labor shortage will be from the highest Contribution margin per labor hour to the lowest which are A,C,B

Answer 2

Answer: A, C, B.

Explanation:

To solve this question based on the information given goes thus:

The Contribution margin per labor hour for Product A will be:

= ($44 - $28) / 2.0

= $16/2.0

= $8

The Contribution margin per labor hour for Product B will be:

= ($18 - $15) / 1.50

= $2

The Contribution margin per labor hour for Product C will be:

= ($28.50 - $27) / 0.50

= $1.50/0.5

= $3

Therefore, the order that Grover Corp. should use to prioritize production of its products to maximize profit during the labor shortage will be:

A, C, B.