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Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use
Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow. Sales price Maximum annual demand (units). Input requirement per unit Direct material Direct labor Classic $ 70 11,000 Formal 200 28,000 Basic $38 18,000 0.7 yards 0.9 hours 9.5 yards 2 hours 0.8 yards 8 hours Costs Variable costs Materials $ 18 per yard Direct labor $ 14 per hour Factory overhead. $ 5 per direct labor-hour Marketing 10 % of sales price Annual fixed costs Manufacturing $50,000 Marketing Administration $ 7,500 $44,000 The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 35,500 direct labor-hours per year caused by the plant layout. Required: a-1. Assuming the company can satisfy the annual demand, calculate the contribution margin for each type of dress shirt using the table below - How much oneration profit could the company earn if it were able to satisfy the annual demand?
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