Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost
ID: 2501867 • Letter: G
Question
Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost and revenue data pertaining to each product are as follows:
At the present time, demand for each of the company's products far exceeds its capacity to produce them. Thus, management is trying to determine which of its games to concentrate on next week in filling its backlog of orders. Gunst's direct labor rate is $12 per hour, and only 1,000 hours of direct labor are available each week.
Determine the maximum total contribution margin the company can make by its best use of the 1,000 available hours. (Do not round intermediate calculations.)
Android Bio-Mutant Cyclops Selling price $ 100 $ 79 $ 125 Direct labor 48 24 60 Direct materials 9 8 16 Variable overhead 7 4 9Explanation / Answer
As per question it takes (48/12),(24/12),(60/12) hrs for A,B,C products respectively. i.e 4hr,2hr,5hr
Let a,b,c be no of units of each to be produced.
contribution margin of A: (SP-CP)a=(100-48-9-7)a= 36a
contribution margin of B: (SP-CP)b=(79-24-8-4)b= 43b
contribution margin of C: (SP-CP)c=(125-60-16-9)c= 40c
36a+43b+40c should be minimum.
4a+2b+5c=1000
a,b,c>0
Solving using solver in excel gives c=200
the contribution margin is 40*200=$8000
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