Product D E F Direct labor SHOW SOLUTION LINK TO TEXT Product D Product E Produc
ID: 2542046 • Letter: P
Question
Product
D
E
F
Direct labor
SHOW SOLUTION
LINK TO TEXT
Product D
Product E
Product F
LINK TO TEXT
Dalton Inc. produces and sells three products. Unit data concerning each product is shown below.Product
D
E
F
Selling price $ 197.4 $ 307.7 $ 257.8 Direct labor costs 33.6 91.8 38.4 Other variable costs 91 82 149The company has 2,500 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $ 12 .
Explanation / Answer
Dalton Inc
Product
D
E
F
Direct labor cost per unit
$33.60
$91.80
$38.40
direct labor cost per hour
$12
$12
$12
number of hours per unit
2.80 hours
7.65 hours
3.2 hours
Product
D
E
F
Selling price per unit
$197.40
$307.70
$257.80
Variable costs -
Direct labor costs
$33.60
$91.80
$38.40
Other variable costs
$91
$82
$149
Total variable costs
$124.60
$173.80
$187.40
Contribution margin
$72.80
$133.90
$70.40
Direct labor hours per unit
2.80
7.65
3.20
Contribution margin per direct labor hour
$26
$17.50
$22
Ranking
I
III
II
Contribution margin = unit sales price – variable cost
Contribution margin per direct labor hour = contribution margin per unit/number of hours needed to produce one unit
Since product D earns highest contribution margin per direct labor hour, it should be produced first with the available direct labor hours.
The number of units that can be produced of D using the available 2,500 labor hours –
One unit of Product D needs 2.80 hours
Number of units of Product D using 2,500 hours = 2,500/2.80 = 893 units (rounded to nearest whole number)
Total contribution margin of Product D = 893 x $72.80 = $65,010
Product
D
E
F
Direct labor cost per unit
$33.60
$91.80
$38.40
direct labor cost per hour
$12
$12
$12
number of hours per unit
2.80 hours
7.65 hours
3.2 hours
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