Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows: Type 5 Type 10 Type 20 Revenues $43,000 $49,000 $56,500 Variable cost $(34,000) $(28,000) $(26,500) Fixed cost (8,000) (8,000) (8,000) Total cost $(42,000) $(36,000) $(34,500) Operating income $ 1,000 $13,000 $22,000 Number of units ÷ 5,000 ÷ 5,000 ÷ 5,000 Operating income per unit $ 0.20 $ 2.60 $ 4.40 Mill's operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows: Type 5: 6 hours Type 10: 6 hours Type 20: 12 hours The Marketing Department is considering a new marketing and sales campaign. Determining the unit contribution margin per furnace hour will assist in making your decision. Round the unit contribution margin to two decimal places. Type 5 Type 10 Type 20 Unit contribution margin per furnace hour $ $ $ Which product should be emphasized in the marketing and sales campaign in order to maximize profitability?
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.
Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows:
| Type 5 | Type 10 | Type 20 | ||||
| Revenues | $43,000 | $49,000 | $56,500 | |||
| Variable cost | $(34,000) | $(28,000) | $(26,500) | |||
| Fixed cost | (8,000) | (8,000) | (8,000) | |||
| Total cost | $(42,000) | $(36,000) | $(34,500) | |||
| Operating income | $ 1,000 | $13,000 | $22,000 | |||
| Number of units | ÷ 5,000 | ÷ 5,000 | ÷ 5,000 | |||
| Operating income per unit | $ 0.20 | $ 2.60 | $ 4.40 |
Mill's operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows:
| Type 5: | 6 hours |
| Type 10: | 6 hours |
| Type 20: | 12 hours |
The Marketing Department is considering a new marketing and sales campaign.
Determining the unit contribution margin per furnace hour will assist in making your decision. Round the unit contribution margin to two decimal places.
| Type 5 | Type 10 | Type 20 | ||||
| Unit contribution margin per furnace hour | $ | $ | $ |
Which product should be emphasized in the marketing and sales campaign in order to maximize profitability?
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