Audiomax Ltd manufactures three models of audio systems: Premier, Deluxe and Superior. When planning next year’s production, the management team wants to make sure the most profitable mix of models is produced. The following table shows the selling price and variable costs per unit for each model.

Required

(a) Construct a marginal cost statement that calculates the contribution per unit for each model.

(b) Calculate the contribution per limiting factor for each model on the assumption that the supply of direct materials is limited, and rank the products accordingly. In addition, interpret your results by making a brief recommendation on the action management should take regarding prioritizing the production of these products.

(c) Calculate the contribution per limiting factor for each model on the assumption that the supply of direct labour is limited, and rank them accordingly. In addition, interpret your results by making brief recommendations on the action management should take regarding prioritizing the production of these products.

(d) Point out any other relevant matters that management should consider.

Transcribed Image Text:

Premium Deluxe Superior E E Selling price 100 150 240 Direct materials 30 40 50 Direct labour 30 50 120 Direct expenses 10 25 24