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Fed [463]
3 years ago
9

Consider the following production and cost data for two products, Q and P: Product Q Product P Contribution margin per unit $35

$40 Machine minutes needed per unit 7 minutes 5 minutes A total of 14,700 machine minutes are available each period, and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period
Business
1 answer:
hammer [34]3 years ago
4 0

Answer:

Total contribution =$117,600

Explanation:

<em>Whenever a company is faced with a limiting factor i.e a resource in short supply, the company should allocate the resource to the product with he highest contribution per unit of the scare resource . </em>

<em>The business outfit should rank its products using contribution per minute of constraint </em>

This is done as follows:

Product                                               Q                 P

Contribution margin                         35                40

Machine hours /unit                          7                  5

Contribution /minutes                         5                 8

Ranking for production                      2nd           1st

Note contribution per minute = contribution per unit/minutes required

<em>Allocation of machine hours</em>

All the 14,700 machine hours should be allocated to the production of product P. Doing so would produce a total maximum contribution equals to

Total contribution : machine hours ×  contribution per machine hr

Total contribution = 8× 14,700 =  117,600  

Total contribution =$117,600  

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Rylan Corporation received an offer from an exporter for 25,000 units of product at $16 per unit. The acceptance of the offer wi
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Answer: a.$275,000

Explanation:

Let us assume local production sales of 0 for simplicity of analysis.

At 0 there will be no Variable Costs and no fixed costs because they are dependant on the amount of units produced.

If then Rylan Corporation receives 25,000 units at $16 per unit this will change the Variable costs as it will have to incorporate the new units.

The question however says that normal production continues. This means that Fixed costs do not change. That means fixed costs remain at $0.

That means the only change will be the Variable costs of selling 25,000 units.

At a rate of $11 per unit we then have,

= 11 * 25,000

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The costs have increased by $275,000 from 0 which means that $275,000 is the Incremental cost.

Note that Fixed and Variable costs of 0 are improbable and we're only used for simpler analysis. Feel free to try the question with other number of units for your own practice. You will arrive at the same answer regardless.

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