Wright, Inc. produces three products. Data concerning the selling prices and uni

Question

Wright, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

Product

Fixed costs are applied to the products on the basis of direct labor hours. Demand for the three products exceeds the company's productive capacity. The tapping machine is the constraint, with only 2,600 minutes of tapping machine time available this week.

Calculate the contribution margin per minute for all three products. (Round your answers to 2 decimal places.)

Given the tapping machine constraint, which product should be emphasized?

Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of tapping machine time?

Wright, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear below:

Explanation / Answer

Answer a-1.

Product C:

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $55 - $40
Contribution Margin per unit = $15

Contribution Margin per minute = Contribution Margin per unit / Tapping Machine Time
Contribution Margin per minute = $15 / 10
Contribution Margin per minute = $1.50

Product D:

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $35 - $30
Contribution Margin per unit = $5

Contribution Margin per minute = Contribution Margin per unit / Tapping Machine Time
Contribution Margin per minute = $5 / 2
Contribution Margin per minute = $2.50

Product E:

Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
Contribution Margin per unit = $65 - $45
Contribution Margin per unit = $20

Contribution Margin per minute = Contribution Margin per unit / Tapping Machine Time
Contribution Margin per minute = $20 / 4
Contribution Margin per minute = $5.00

Answer a-2.

Given the tapping machine constraint, the product which provide maximum contribution margin per minute should be given emphasis.

So, Product E should be emphasized.

Answer b.

The company is willing to pay an additional hour of tapping machine time for a maximum of $1.50 per minute.

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