Helimuth Tables Ltd. Manufactures three types of tables; wooden, plastic, and gl

Question

Helimuth Tables Ltd. Manufactures three types of tables; wooden, plastic, and glass-surfaced. Data on price and costs for the units are shown below. The allocated fixed cost, which is fixed manufacturing overhead, is allocated to the three products using a rate of $1.75 per direct labor hour consumed by the product. There are 900 uncommitted hours of direct labor that can be allocated to manufacturing more products. Which of the three products should be produced using the available direct labor hours? Assume that Helimuth Tables will be within capacity to produce and sell the additional units. Direct labor hours used: Contribution Margin per direct labor hour for a unit of:

Explanation / Answer

Direct labor hours used:

Wooden Table = $7/$1.75 = 4 Hours
Plastic Table = $8/$1.75 = 4.57 Hours
Glass Table = $21/$1.75 = 12 Hours

Contribution margin per direct labor hour for a unit.

Wooden Table => ($102 - $43 - $7) / 4 = 13

Plastic Table => ($53 - $27 - $8) / 4.57 = 3.94

Glass Table => ($106 - $57 - $21) / 12 = 2.33

On a per hour basis, Wooden Table produces the highest contribution margin, therefore Wooden Table should be produced using total uncommitted labor hours.

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