ervice Emphasis The following analysis of selected data is for each of the two services Gates Corporation provides. Service A Service B Per-service data at 10,000 services Sales price $28 $24 Service costs: Variable 11 11 Fixed 6 4 Selling and administrative expenses: Variable 5 3 Fixed 3 1
ervice Emphasis The following analysis of selected data is for each of the two services Gates Corporation provides. Service A Service B Per-service data at 10,000 services Sales price $28 $24 Service costs: Variable 11 11 Fixed 6 4 Selling and administrative expenses: Variable 5 3 Fixed 3 1
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Service Emphasis
The following analysis of selected data is for each of the two services Gates Corporation provides.
Service A | Service B | ||||
---|---|---|---|---|---|
Per-service data at 10,000 services | |||||
Sales price | $28 | $24 | |||
Service costs: | |||||
Variable | 11 | 11 | |||
Fixed | 6 | 4 | |||
Selling and administrative expenses: | |||||
Variable | 5 | 3 | |||
Fixed | 3 | 1 |
In the Gates operation, labor capacity is the company's constraining resource. Each unit of A requires 3 hours of labor, and each unit of B requires 2 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Gates might have.
Service | ||
---|---|---|
A | B | |
Revenue | Answer | Answer |
Less: Variable cost | Answer | Answer |
Contribution margin | Answer | Answer |
Labor hours per unit | Answer | Answer |
Contribution margin per labor hour | Answer | Answer |
Any unused capacity should be devoted to Service B, which has $1 less contribution margin per labor hour than does Service A.
Any unused capacity should be devoted to Service A, which has $1 more contribution margin per labor hour than does Service A.
Any unused capacity should be devoted to Service B, which has $1 more contribution margin per labor hour than does Service A.
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