Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Last year, a sailboard company produced two types of boards: a regular board for multi-purpose sailing; and, a special trick board used by experts for

Last year, a sailboard company produced two types of boards: a regular board for multi-purpose sailing; and, a special trick board used by experts for competitions. The regular board sells for $750 and the competition board sells for $1,350. The variable production costs are $250 and $400 respectively, and the company has $400,000 in fixed costs overall. Marketing staff have determined that the company should specialize in the competition boards only, and sell the regular boards, if at all, under a different brand name. Last year the company made a profit, selling twice as many regular boards as competition boards, resulting in a fixed cost allocation of $5.00 per board. It takes 6 hours of direct labour to make a regular board and 12 hours to make a competition board. The company worked at full capacity of 19,500 direct labour hours last year. Based on the above information only, which product or mix of products, should the company choose? Assume that any and all production can be sold.

a) the competition board only, as it has a higher contribution margin

b) the regular board only, as it takes fewer direct labour hours to build

c) the regular board only, as it has the highest contribution margin per direct labour hour

d) any combination is equivalent, based on the contribution margin times the number of boards that could be sold

e) both as the company made a profit last year using this strategy

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

SEO Competitor Audit Journal

Authors: Nelz Plummer

1st Edition

B09DDWJGRC, 979-8459748123

More Books

Students also viewed these Accounting questions

Question

List the functions that are served by short-term memory.

Answered: 1 week ago