Consider the following production and cost data for two products, Big and Little: Big Little Demand in units 10,000 15,000 Contribution margin per unit $24 $18 Machine-hours needed per unit 4 MH 2 MH Labor hours needed per unit 6 DLH 4 DLH The company has 60,000 machine hours available each period. What is the maximum amount of contribution margin the company can make each period? Group of answer choices $240,000 $180,000 $270,000 $510,000 $450,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Big
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Little
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Demand in units
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10,000
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15,000
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Contribution margin per unit
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$24
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$18
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Machine-hours needed per unit
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4 MH
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2 MH
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Labor hours needed per unit
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6 DLH
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4 DLH
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The company has 60,000 machine hours available each period. What is the maximum amount of contribution margin the company can make each period?
Lets understand the basics.
This question deals with the theory of constrain.
Theory of constrain arise when demand is more than the input available. In that case, management wants to to earn maximum contribution using the input available.
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