Pearson Inc. produces three products: A, B, and C, which have the following information, for 2021: ABC

Selling price per unit ................................. $60 Less variable costs per unit:

Direct materials .................................. 27 Direct labor ......................................... 12 Variable manufacturing overhead ............. 3

Total variable cost per unit ..............................$42

$90 $80

 14 40 32 16 8 4 $54 $60 

Due to the stronger-than-expected economic recovery, the demand for the companys products far exceeds its capacity to produce. Management is trying to determine which product(s) to concentrate on next week in filling its backlog of orders. The direct labor rate is $8 per hour for all products, and only 3,000 hours of labor time are available next week.

(1) Using the information given above, can you infer how variable manufacturing overhead is allocated by Pearson Inc.? Why or why not? Explain your answer with analysis.

(2) Compute the contribution margin per unit for each of these three products. Which product has the highest contribution margin per unit?

(3) Compute the contribution margin ratio for each of these three products. Which product has the highest contribution margin ratio?

2

(4) Which product orders would you recommend that the company work on next weekthe orders for product A, product B, or product C? Show computations to explain your recommendation.

(5) A new situation has arisen. By paying overtime wages, more than 3,000 hours of direct labor can be made available next week. Up to how much should the company be willing to pay per hour in overtime wages as long as there is unfilled demand for the three products? Explain your answer with computations.