Question
a. Holden Corporation produces three products, with costs and selling prices as follows: Product A Product B Product C Selling price per unit $ 30
a. Holden Corporation produces three products, with costs and selling prices as follows:
Product A | Product B | Product C | ||||||||||||
Selling price per unit | $ | 30 | 100 | % | $ | 20 | 100 | % | $ | 15 | 100 | % | ||
Variable costs per unit | 18 | 60 | % | 15 | 75 | % | 6 | 40 | % | |||||
Contribution margin per unit | $ | 12 | 40 | % | $ | 5 | 25 | % | $ | 9 | 60 | % | ||
A particular machine is the 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. Rank the products from the most profitable to the least profitable use of the constrained resource (bottleneck). (Round your intermediate calculations to 2 decimal places.)
b.
The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow:
Sales of 15,000 units | $ | 150,000 | |
Variable expenses | 120,000 | ||
Contribution margin | 30,000 | ||
Fixed expenses | 40,000 | ||
Net operating loss | $ | (10,000 | ) |
If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable.
The annual financial advantage (disadvantage) for the company from discontinuing the production and sale of Doombugs would be:
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