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 $160 48 96 Omega Beta $140 $112 Selling price Less variable expenses: 18 80 98 30 Direct materials Labour and overhead Total variable expenses Contribution margin Contribution margin ratio 54 4884$42 $28 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

Alpha Omega Beta Direct materials 48 30 18 Cost per kilogram 6 6 6 Direct materials per unit (1) 8 5 3 Contribution margin (2) 64 28 42 Contribution margin per kilogram (2/1) 8 5.6 14 Preference in Production 2 3 1 Beta should be produced first, Alpha second and Omega Third

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