E7-11 Making Decisions Involving Constrained Resource [LO 7-2, 7-7] Cordova manu

Question

E7-11 Making Decisions Involving Constrained Resource [LO 7-2, 7-7]

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows:

Cordova currently is limited to 45,000 labor hours per month.

Required:
Assuming an infinite demand for each of Cordova’s products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal place.)

Which product would be Cordova's first choice to produce?

Product A Product B Product C Sales price $ 40.00 $ 50.00 $ 80.00 Variable costs per unit 21.50 21.00 41.50 Fixed costs per unit 8.00 8.00 8.00 Required number of labor hours 1.25 2.00 2.50

Cordova currently is limited to 45,000 labor hours per month.

Required:
Assuming an infinite demand for each of Cordova’s products, determine contribution margin per direct labor hour. (Round your answers to 2 decimal place.)

Contribution Margin Product A CM per DL Hour Product B CM per DL Hour Product C CM per DL Hour

Which product would be Cordova's first choice to produce?

Product C Product B Product A

Explanation / Answer

Product A Product B Product C Sales price 40 50 80 Less: Variable costs per unit 21.5 21 41.5 Contribution Margin per unit 18.5 29 38.5 Required number of labor hours 1.25 2 2.5 Contribution Margin per direct labor hour 14.8 14.5 15.4 Product C should be first choice to produce

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