QUESTION 1 Utilization of a Constrained Resource Westburne Company produces thre

Question

QUESTION 1

Utilization of a Constrained Resource

Westburne Company produces three products: Alpha, Omega and Beta. Data (per unit) concerning the three products follow:

Alpha             Omega           Beta

Selling price                                                  $160               $112               $140

Less variable expenses:

            Direct materials                                    48                    30                    18

            Labour and overhead                         48                    54                    80

Total variable expenses                                  96                    84                    98

Contribution margin                                                $64               $28               $42

Contribution margin ratio                           40%              25%              30%

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 $6 per kilogram, with a maximum of 10,000 kilograms available each month.

Required:

Which orders would you advise the company to accept first, those for Alpha, Omega or Beta? Which orders second? Third?

Explanation / Answer

Contribution margin per restained resources :

Rank :

Alpha Omega Beta Contribution margin per unit 64 28 42 Material pound per unit 8 5 3 Contribution margin per pound 8 5.6 14 Rank 2 3 1

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