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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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