GZ Inc. manufactures two products that require both machine processing and labor

Question

GZ Inc. manufactures two products that require both machine processing and labor operations.  Although there is unlimited demand for both products, GZ could devote all its capacities to a single product.  Unit prices, cost data, and processing requirements follow.

                                    Product G               Product Z

Unit selling price       $70                                $230

Unit variable costs     $30                               $90

Machine hrs. per unit    .4                                  1.4

Labour hrs. per unit     2.0                                 6.0

Next year, the company will be limited to 160,000 machine hours and 120,000 labor hours.  Fixed costs for the year are $1,500,000.

1.  Compute the most profitable combination of products to be produced next year.

2.  Prepare an income statement using the contribution margin format for the product volume computed in problem 1.

Explanation / Answer

PARTICULARS Product G Product Z Unit selling price $70 $230 Unit variable costs $30 $90 Machine hrs. per unit 0.4 1.4 Labour hrs. per unit 2 6 PARTICULARS Product G Product Z Unit selling price $70 $230 Unit variable costs $30 $90 Contribution per unit $40 $140 Machine Hrs per unit 0.4 1.4 Contribution perM.hr 100 100 Labour hrs. per unit 2 6 Contribution perL.hr 20 23.33333333 RANKING 2 1 Most Profitable Combination of Products No of Product Z can be produced at 120000 lb.hrs 120000/6 20000 Since, there is unlimited demand and contibution per L.hr is higher for Z.hence, all Z products should be produced PARTICULARS PRODUCT Z Sales (20000 x 230) 4600000 less : Variable costs (20000 x 90) 1800000 Contribution 2800000 Less : Fixed costs 1500000 Profit 1300000

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.