Question
Service Emphasis The following analysis of selected data is for each of the two services Rockville Corporation provides. Service G Service H Per-unit data at
Service Emphasis The following analysis of selected data is for each of the two services Rockville Corporation provides.
Service G | Service H | ||||
---|---|---|---|---|---|
Per-unit data at 10,000 services | |||||
Sales price | $35 | $22 | |||
Service costs: | |||||
Variable | 12 | 12 | |||
Fixed | 6 | 4 | |||
Selling and administrative expenses: | |||||
Variable | 5 | 2 | |||
Fixed | 3 | 1 |
In the Rockville's operation, labor capacity is the company's constraining resource. Each unit of G requires 3 hours of labor, and each unit of H requires 1 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Rockville might have.
Service | ||
---|---|---|
G | H | |
Revenue | ||
Less: Variable cost | ||
Contribution margin | ||
Labor hours per unit | ||
Contribution margin per labor hour |
Any unused capacity should be devoted to Service H, which has $2 less contribution margin per labor hour than does Service G.
Any unused capacity should be devoted to Service G, which has $2 more contribution margin per labor hour than does Service H.
Any unused capacity should be devoted to Service H, which has $2 more contribution margin per labor hour than does Service G.
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