Problem 1. ZapVideo Inc. produces two basic types of video games, Clash and Slas

Question

Problem 1. ZapVideo Inc. produces two basic types of video games, Clash and Slash. Pertinent data follow: Sales price Clash hash $240 $168 Costs Direct materials 67 31 36 60 Variable factory overhead (@$15 per direct labor hour) 30 Direct labor Allocated fixed factory overhead (based on direct labor Marketing expenses (all variable) hours) 24 2 35 4 221 157 Total costs Operating income is insufficient labor capacity in the plant to meet the combined demand for both Clash and Slash. Both products are produced through the same production departments. It takes 4 labor hours to produce a u Clash and 2 labor hours to produce a unit of Slash. 1. Calculate the contribution margin per unit for Clash. (Fo 2. Calculate the contribution margin per unit for Flash. 3. In view of the labor shortage, how much is the contribution margin per direct labor hour for Clash?

Explanation / Answer

CLASH FLASH Selling price per unit 240 168 Less: variable cost Direct material 67 31 Direct labour 36 60 Variable factory overheads 60 30 marketing expense 35 24 Contribution per unit 42 23 Labour hours required per unit 4 2 Contribution per labour hour 10.5 11.5 ranking of production II I Req 1: Contribution per unit for clash = $ 42 per unit Req 2: Contribution per unit of Flash = $ 23 per unit Req 3: Contribution per hour of Clash = $ 10.50 per hour Req 4: Contribution per hour of Flash = $ 11.50 per hour Req 5: Flash should be preferred as it is most profitable due to contribution per hour is higher.

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