E7-11 Making Decisions Involving Constrained Resource [LO 7-2, 7-7] Cordova manu

Question

E7-11 Making Decisions Involving Constrained Resource [LO 7-2, 7-7]

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows:     

Cordova currently is limited to 60,000 labor hours per month.

Required:
Assuming an infinite demand for each of Cordova’s products, determine contribution margin per direct labor hour.

(Round your answers to 2 decimal place.)

Which product would be Cordova's first choice to produce?

Product A Product B Product C Sales price $ 47.00 $ 57.00 $ 87.00 Variable costs per unit 22.70 12.00 38.70 Fixed costs per unit 9.00 9.00 9.00 Required number of labor hours 1.50 2.50 3.00

Explanation / Answer

Contribution margin per direct labor hour = (Selling price per unit - Variable cost per unit) / Direct labor hours per unit

Product A = ($47 - $22.70) / 1.50 = $16.20

Product B = ($57 - $12.00) / 2.50 = $18

Product C = ($87 - $38.70) / 3.00 = $16.10

Product B would be Cordova's first choice to produce.

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