2. Backyard Inc. manufactures two types of outdoor Christmas decorations: Reinde

Question

2. Backyard Inc. manufactures two types of outdoor Christmas decorations: Reindeer and Snowman. The information for each product follows: Monthly demand of products in unts 80 Selling price per unit.. Direct materials per unit... Direct labor per unit Variable manufacturing overhead per unit...... Fixed manufacturing overhead per unit Molding hours per unit Snowman 600 Reindeet $160 $44 $56 s16 $14 0.4 $200 $56 S57 $17 $15 0.8 A total of 400moldinghua The molding machine is the constraint in the production process. are available this month. What is the contribution margin per unit of constrained resource for each product type? a. Ans: $ for Reindeer for Snowman b. To maximize net operating income, the company should produce: units of Reindeer requiringmolding hours Ans: molding hours units of Snowman requiring

Explanation / Answer

Step 1:Calculation of contribution margin per unit of constrained resource for each product

Step 2: To Maximise net operating income, the company should produce:

a) 800 units of Reindeer requiring 320 molding hours.

b)100 units of Snowman requiring balance 80 molding hours of total 400 hours.

Sl No Particulars Reindeer Snowman a Selling price per unit $160 $200 b Direct Material per unit $44 $56 c Direct Labour per unit $56 $57 d Variable manufacturing overhead per unit $16 $17 e Contribution Margin per unit(a-b-c-d) $44 $70 f Molding hours required per unit 0.4 0.8 g Contribution Margin per molding hour (e/f) $110 $87.5 h Ranking for production based on Contribution Margin per molding hour I II

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