Shelby Company produces three products: product X, product Y, and product Z. Dat

Question

Shelby Company produces three products: product X, product Y, and product Z. Data concerning the three products follow (per unit):

Demand for the company’s products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $5 per pound, with a maximum of 4,800 pounds available each month.

Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Shelby Company produces three products: product X, product Y, and product Z. Data concerning the three products follow (per unit):

Explanation / Answer

a)

Particulars Product X Product Y Product Z
1)Direct labor cos $30 $75 $45
2)Direct lobor rate $15/unit $15/unit $15/unit
3)Direct Labor Hour
Required (1/2) 2 hrs. 5 hrs. 3 hrs.

b)
Particulars Product X Product Y Product Z
1)Selling Price $200 $300 $250
2)Direct labor costs $30 $75 $45
3)Other Variable costs $110 $90 $121
4) Contribution (1-2-3) $60 $135 $84
5) Direct Labor Hour Required 2 hrs. 5 hrs. 3 hrs.
6) Contributin per machine hour $30/hr $27/hr $28/hr
(4/5)


c) Since the contribution per hour is maximum in the case of Product A, the company should produce the Product A in order to maximise the contribution
Total No. of Product A produced = Total no. of Labor hour/ Direct labor hour
required
= 2000/2 units
= 1000 units

Contribution Form 1000 units of A = 1000 X contribution per unit of labor hour from A

= 1000 X $30

= $30000

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