4. (4 points) Holden Company produces three products, with costs and selling pri

Question

4. (4 points) Holden Company produces three products, with costs and selling prices as follows: Selling price per unit Product A $30 100% Product B $20 100% Product C $15 100% Variable costs per unit Product A 18 60% Product B 15 75% Product C 6 40% Contribution margin per unit Product A $12 40% Product B $ 5 25% Product C $ 9 60% A particular machine is a bottleneck. On that machine, 3 machine hours are required to produce each unit of Product A, 1 hour is required to produce each unit of Product B, and 2 hours are required to produce each unit of Product C. In which order should it produce its products?

Explanation / Answer

Answer:-In following order (ranking) products should be produced:-

Ranking 1:- Product B

Ranking 2:- Product C

Ranking 3:- Product A

Explanation:-

Holden Company Statement of Ranking Particulars Product A Product B Product C Selling price per unit $ 30 20 15 Less:-Variable cost per unit $ 18 15 6 Contribution margin per unit $ (a) 12 5 9 Machine hours to produce per unit (b) 3 1 2 Contrbution margin per machine hour (limited resource) $ C=a/b 4 5 4.5 Ranking III I II

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