EXERCISE 12-5 Utilization of a Constrained Resource [LO3 The following are the selling price, variable costs and contribution margin for one unit of each of Banner Companys three products: A. B, and C 60 90 80 Variable costs: Direct materials Direct labour 27 14 32 ariable manufacturing overhead.. Total variable cost Contribution margin. .4 54 60 30% -29% Due to a strike in the plant of one of its competitors, demand for the companys products far exceeds its capacity to produce. Management is trying to determine which product(s) to con- centrate on next week in filling its backlog of orders. The direct labour rate is $8 per hour, and only 3.000 hours of labour time are available each week Required: 1. Compute the amount of contribution margin that will be obtained per hour of labour time spent on each product. Which orders would you recommend for product A. product B or product C? Show computations. 2. that the company work on next week-the orders 3. By paying overtime wages, more than 3000 hours of direct labour time can be made avail- able next week. Up to how much should the company be willing to pay per hour in over- time wages as long as there is unfilled demand for the three products? Explain. EXERCISE 12-6 Sell or Process Further ILO2 In a joint processing operation. Nolen Company manufactures three grades of sugar from a common input, sugar cane. Joint processing costs up to the split-off point total $80,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: raw sugar $40.000: brown sugar $40000: and white sugar, $42000 Each product may be sold at the split-off point or processed further. Additional process- ing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below Sales Processing Costs Value aw sugar.... Brown sugar.. White sugar.. $42000 %2000 12.000 $70.000 Required Which product or products should be sold at the split-off point. and which product or prod- ucts should be processed further? Show computations. EXERCISE 12-11 Utilization of a Constrained Resource ILO3 Westburne Company produces three products: Alpha, Omega and Beta. Data (per unit) con cerning the three products follow Alpha Omega Beta STI2 Seling price Less variable xpenses $60 S140 Diredt materials Labour and overhead..4 48 30 54 84 80 98 $ 42 Contrbution margn. Contriutin morgn ratio Demand for the company's products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs S6 per kilogram with a maximum of 10000 kilograms available each month Required Which orders would you advise the company to accept first those for Alpha. Omega, or Betai Which orders second? Third? EXERCISE 12-12 Sell or Process Further IL02 Senatory Limited produces several products from processing krypton, a rare mineral. Material and processing costs total $30000 per tonne one-third of the costs are al located to the product Castingard. The Castingard produced from a tonne of krypton can be either sold at the split off point or processed further at a cost of $13000 and then sold for $60.000. The sales value of Castingard at the split-off point is $50.000. 556 Chapter 12 Relevant Costs for Decision Making Required Should Castingard be processed further or sold at the split-off point