Zap Video Inc. produces two basic types of video games, Clash and Slash. Pertinent data follow (DLH = direct labor hour): Clash Slash Sales price (per unit) $ 420 $ 348 Costs (per unit): Direct materials 85 49 Direct labor 72 96 Variable factory overhead (@ $15 per DLH) 60 30 Allocated fixed factory overhead (based on DLHs) 24 12 Marketing expenses (all variable) 53 42 Total costs 294 229 Operating income (per unit) $ 126 $ 119 There is insufficient labor capacity (i.e., DLHs) in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. In view of the labor shortage, which of the two products is most profitable, and how much is the contribution margin, per DLH?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Zap Video Inc. produces two basic types of video games, Clash and Slash. Pertinent data follow (DLH = direct labor hour): Clash Slash Sales price (per unit) $ 420 $ 348 Costs (per unit): Direct materials 85 49 Direct labor 72 96 Variable factory overhead (@ $15 per DLH) 60 30 Allocated fixed factory overhead (based on DLHs) 24 12 Marketing expenses (all variable) 53 42 Total costs 294 229 Operating income (per unit) $ 126 $ 119 There is insufficient labor capacity (i.e., DLHs) in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. In view of the labor shortage, which of the two products is most profitable, and how much is the contribution margin, per DLH?
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