f. Selection of the Most Profitable Product DVD Production Company produces two
ID: 2537130 • Letter: F
Question
f. Selection of the Most Profitable Product DVD Production Company produces two basic types of video games, Flash and Clash. Pertinent data for DVD Production Company follow: Flash $ 250 Clash $ 140 Sales price Costs Direct materials Direct labor ($50/hr.) Variable factory overhead* Fixed factory overhead* Marketing costs (all fixed) 50 100 50 20 25 50 25 10 10 Total costs $ 230 $ 120 Operating profit $ 20 20 "Based on labor-hours: 2 DLHs per unit of Flash, and 1 DLH per unit of Clash. The DVD game craze is at its height so that either Flash or Clash alone can be sold to keep the plant operating at full capacity. However, labor capacity in the plant is insufficient to meet the combined demand for both games. Flash and Clash are processed through the same production departments Required: 2a. Calculate the contribution margin per labor hour for both Flash and Clash. (Enter all amounts as positive values.) Flash Clash Contribution margin per labor hour 2b. Which product should be produced?Explanation / Answer
Flash Clash Sales 250 140 Variable expenses: Direct materials 50 25 Direct labor 100 50 Variable factory overhead 50 25 Total Variable expenses 200 100 Contribution margin 50 40 Direct labor hours 2 1 Contribution margin per labor hour 25 40 2b Clash should be porduced
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