Service Emphasis

The following analysis of selected data is for each of the two services Gates Corporation provides.

Service A Service B

Per$-$service data at $10,000$ services

Sales price $$35$ $$29$

Service costs:

Variable $910$

Fixed $64$

Selling and administrative expenses:

Variable $53$

Fixed $31$

In the Gates operation, labor capacity is the company's constraining resource. Each unit of A requires $3$ hours of labor, and each unit of B requires $2$ 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 Gates might have.

Service

A B

Revenue Answer

Answer

Less: Variable cost Answer

Answer

Contribution margin Answer

Answer

Labor hours per unit Answer

Answer

Contribution margin per labor hour Answer

Answer

Any unused capacity should be devoted to Service B$,$ which has $$1$ less contribution margin per labor hour than does Service A$.$

Any unused capacity should be devoted to Service A$,$ which has $$1$ more contribution margin per labor hour than does Service A$.$

Any unused capacity should be devoted to Service B$,$ which has $$1$ more contribution margin per labor hour than does Service A$.$