Calibri Company produces three products: F, G, and H. The selling price, variabl

Question

Calibri Company produces three products: F, G, and H. The selling price, variable costs, and contribution margin for one unit of each product follow:

Additional Details
Calibri Company produces three products: F, G, and H. The selling price, variable costs, and contribution margin for one unit of each product follow:

Product
F G H
Selling price $40 $110 $50
Variable costs:
Direct materials $16 $25 $20
Direct labor $11 $20 $12
Variable manufacturing $10 $10 $8
overhead
Total variable costs $37 $55 $40
Contribution margin $3 $55 $10
Contribution margin ratio 7.5% 50% 20%

One of two major machines used to produce these products has broken down and a new one is on backorder, so the company is down to one machine. Product F takes 0.20 machine hours to produce one unit, Product G takes 11 machine hours to produce one unit, and Product H takes 2.5 machine hours. There are 1,000 machine hours available on the new machine.

a. What is the amount of contribution margin that will be obtained per machine hour on each product?
b. Which product would you recommend that the company work on next week

Explanation / Answer

F has contribution of $3 so in 1000 hours additional contribution is 3x1000x3 = $9000 G has contribution margin - $55 So in 1000 hours added margin is 90 x 55 = $4950 H margin is 10 production is 1000 hours is 1000/2.5 = 400 addition is 400 x 10 = 4000 F is better.

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