1.
The contribution margin per machine hour for each product.
1.
Answer to Problem 5PSB
Solution:
The contribution margin per machine hour for Product R and Product T is $100 and $35.
Explanation of Solution
Calculate the contribution margin per machine hour for each product as shown below.
| Contribution margin per machine hour | Product R | Product T |
| Selling price per unit | $60 | $80 |
| Variable costs per unit | 20 | 45 |
| Contribution margin per unit | $40 | $35 |
| Machine hours to produce 1 unit | 0.4 | 1 |
| Contribution margin per machine hour | $100 | $35 |
Table − 1
Hence, the contribution margin per machine hour for Product R and Product T is $100 and $35.
2.
The units of Product R and Product T should the company produce to operate with only one shift and total contribution margin each month.
2.
Answer to Problem 5PSB
Solution:
The maximum unit of Product R is 440 units and the contribution margin is $17,600 per month.
Explanation of Solution
Sales mix recommendation: To the extent allowed by production and market constraints, the company should produce as much of Product R as possible. In single shift, the company can produce 176 hours per month.
Calculate the maximum output of R as shown below.
Therefore, the maximum output of R is 440 units per month.
Calculate the contribution margin at recommended sales mix as shown below.
Therefore, the contribution margin at recommended sales is $17,600.
The company should produce maximum units of Product R that is 440 units with contribution margin $17,600 per month.
3.
The units of Product R and Product T for another shift and the contribution margin for the mix.
3.
Answer to Problem 5PSB
Solution:
The maximum possible unit of Product R and Product T is 880 and 132 units per month. The contribution margin is $40,840 per month.
Explanation of Solution
The sales mix recommendation is that the maximum possible output of the Product R will be doubled once the second shift is added.
Calculate the maximum output of R as shown below.
Therefore, the maximum output of R is 880 units per month.
The maximum level of Product R exceeds the company constraint for Product R that is 550 units per month. Therefore, the company should produce 550 units of Product R and allocate the remaining production capacity in the production of Product T.
Calculate the hours available for Product T as shown below.
| Particulars | Amount |
| Units of Product R | 550 units per month |
| Hours per unit | 0.4 |
| Hours used for Product R | 220 hours |
| Hours available for Product T |
132 hours |
Table − 2
Therefore, the hour available for Product T is 132 hours.
Calculate the maximum output of T as shown below.
Therefore, the maximum output of T is 132 units per month.
Calculate the contribution margin at recommended sales mix as shown below.
| Particulars | Units | Contribution/unit | Product T |
| Product R | 550 | 40 | $22,000 |
| Product T | 132 | 35 | $4,620 |
| Less extra shift costs | (3,250) | ||
| Total contributing margin | $23,370 |
Table − 3
Therefore, the contribution margin at recommended sales is $23,370.
It is clear from the above calculation that the contribution margin of $23,370 is quite higher than the margin of $17,600 obtained from one shift alone. Hence, the management should try to add the second shift.
4.
To ascertain:
Whether the company pursues the given strategy and double the shift.
4.
Answer to Problem 5PSB
Solution:
The company can pursue the given strategy and double the shift.
Explanation of Solution
The company can loosen up the market constraint for the sales of Product R to the extent, where it can sell 675 units by incurring additional marketing cost. This implies that 675 units of Product R can be produced by the company and they can allocate its remaining productive capacity to Product T.
Calculate the hours available for Product T as shown below.
| Particulars | Amount |
| Units of Product R | 675 units per month |
| Hours per unit | 0.4 |
| Hours used for Product R | 270 hours |
| Hours available for Product T |
82 hours |
Table − 4
Therefore, the hour available for Product T is 82 hours.
Calculate the maximum output of T as shown below.
Therefore, the maximum output of T is 82 units per month.
Calculate the contribution margin at recommended sales mix as shown below.
| Particulars | Units | Contribution/unit | Product T |
| Product R | 670 | 40 | $27,000 |
| Product T | 82 | 35 | $2,870 |
| Less extra shift costs | (3,250) | ||
| Less extra marketing costs | (4,500) | ||
| Total contributing margin | $22,120 |
Table − 5
Therefore, the contribution margin at recommended sales is $22,120.
Hence, it is clear from the above calculation that the contribution margin of $22,120 is quite lower than the margin of $23,370 obtained under the existing market constraints.
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Chapter 23 Solutions
Connect 2 Semester Access Card for Financial and Managerial Accounting
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