Gettysburg Pharmaceuticals, Inc. (GPI) manufactures a line of drugs that fight g

Question

Gettysburg Pharmaceuticals, Inc. (GPI) manufactures a line of drugs that fight gingivitis by inhibiting the destructive enzyme that causes the disease. GPI's information on estimated sales for the following year is provided below GETTYSBURG PHARMACEUTICALS, INC. INFORMATION ABOUT SELLING PRICES AND ESTIMATED SALES FOR VARIOUS COMPANY PRODUCTS Selling Price Product Al A2 B1 B2 B3 Estimated Sales in Units 78.00 65.00 54.00 58.00 40.00 24,000 35,000 40,000 30,000 20,000 The estimated variable costs per unit of producing the five products are provided below. GETTYSBURG PHARMACEUTICAL, INC. INFORMATION ABOUT VARIABLE COSTS FOR VARIOUS COMPANY PRODUCTS Product Al A2 B1 B2 B3 Direct Materials Direct Labor Variable MOH 21.00 S 13.00 12.00 19.00 10.00 18.00 S 15.00 9.00 12.00 9.00 8.00 7.00 6.00 9.00 5.00 Due to the highly technical nature of manufacturing the drugs, the company cannot train additional direct labor workers hours. GPI has the current capacity of 50,000 direct labor hours per year. The average direct labor cost is $30 per hour. Annual fixed costs are $2,200,000. in the near future, and its production is constrained by the available direct labor 10

Explanation / Answer

A1 A2 B1 B2 B3 Selling Price $78 65 54 58 40 Less: Variable expenses Direct material 21 13 12 19 10 Direct Labor 18 15 9 12 9 Variable MOH 8 7 6 9 5 Total variable expenses 47 35 27 40 24 ans 1 Contribution margin per unit C $31 $30 $27 $18 $16 Direct labor hours per unit D 0.6 0.5 0.3 0.3 0.3 (18/30) (15/30) (9/30) (12/30) (9/30) ans 2 Contribution margin per direct labr hour $18.60 $15.00 $8.10 $5.40 $4.80 (C*D) Total estimated sales in units S 24000 35000 40000 30000 20000 ans 3 Total hours required D*S 14400 17500 12000 9000 6000 Ranking as per CM per Direct labor hour 1 2 3 4 5 ans 4To maximixe profit the units to produce 14400 17500 12000 6100 0 (50000-14400-17500-12000) If any doubt please comment

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