14. Mare Corporation makes three products with the following characteristics: Pr

Question

14. Mare Corporation makes three products with the following characteristics: Products Selling price per unit... $10 $15 $20 Variable cost per unit $6 $10 $10 Machine hours per unit..24 10 The company has a capacity of 2,000 machine hours, but there is virtually unlimited demand for each product. In order to maximize total contribution margin, how many units of each product should the company produce? A) 2,000 units of X, 500 units of Y, and 200 units of Z B) 0 units of X, 0 units of Y, and 200 units of Z C) 0 units of X, 500 units of Y, and 0 units of Z D) 1,000 units of X, 0 units of Y, and 0 units of Z 15. The constraint at R Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below KD FS $54266 $222.84 $158.72 $420.54 $167.76 3.20 8.603.60 Selling price per unit..$192.00 Variable cost per unit. Minutes on the constraint Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? A) $33.28 per unit B) $10.40 per minute C) $122.12 per unit D) $15.30 per minute 16. W Corporation produces three products, A, B, and C, from a single raw material input. Product A can be sold at the split-off point for $40,000, or it can be processed further at a total cost of $15,000 and then sold for $58,000. Joint costs total $60,000 annually. Product A should be: A) discontinued because revenues after further processing are less than total joint costs B) sold at the split-off point C) processed further and then sold D) processed further only if its share of the total joint costs is less than the incremental revenues from further processing

Explanation / Answer

Correct Option is

D) 1000 units of X, 0 units of Y and 0 units of Z..

Correct Option is

D) $15.3 per minute

Since there is an increase in the profit as a result of further processing, it is better to further process the product and then sell. Joint Costs are ignored as the joint costs are incurred before split off which is common to both cases i.e., sale at split off point and sale after further processing.

Correct Option is

C) Processed further and then sold

Requirement 14: Computation of units to be produced to maximise the total contribution margin Particulars X Y Z a Selling price per unit 10 15 20 b Variable Cost per unit 6 10 10 c Contribution Margin per unit (a-b) 4 5 10 d Machine hours per unit 2 4 10 e Contribution Margin per Machine Hour (c/d) 2 1.25 1 f Ranking 1 2 3 g Number of units to be produced 1000 0 0 (2000/2)

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