A fire recently destroyed a substantial portion of Pharoah Companys production capacity. It will be many months before capacity can be restored. During this period, demand for the firms products will exceed the companys ability to produce them. Per-unit data on the firms three major products is summarized as follows:

Product		A		B		C
Selling price		$ 77		$ 88		$ 68
Variable costs		36		21		22
Fixed costs		15		20		9
Operating profit		$ 26		$ 47		$ 37

Fixed costs have been allocated to the products on the basis of the labour hours required to produce each product. The major capacity constraint is the availability of time on a processing machine. Each unit of Product A and Product C requires 2 hours of processing on the machine, whereas Product B requires 3 hours.

Calculate contribution margin per hour for each product. (Round answers to 2 decimal places, e.g. 15.25.)

		Contribution margin per hour
Product A		$
Product B		$
Product C		$

If demand for each of the products is greater than the firms ability to meet that demand, which product should the firm produce first?

Product A/ Product C/ Product B

If enough capacity exists to produce two products, which product should be produced second?

Product B/ Product A/ Product C

Assume that the firm has enough capacity to meet the demand of the two products you identified in previous part. If estimated demand for the next product to be produced exceeds capacity by 970 units, what is the maximum amount the firm would be willing to pay to increase capacity?

Maximum amount the firm would be willing to pay

$

Management adopted your plan from first part. Shortly thereafter, a strategically important customer requested that the firm supply 530 units of Product D, which has been discontinued but could be produced again if needed. Management wants to meet the customers request to maintain goodwill but wants to know the cost before making the decision. In the past, Product D sold for $ 38, incurred $ 23 in variable costs, was allocated $ 4 of fixed costs, and required 1.5 hours of processing on the machine. What is the opportunity cost of accepting the order? (Round intermediate calculations to 2 decimal places, e.g. 25.26 and final answer to 0 decimal places, e.g. 125.)

Opportunity cost

$