Question
Sparkle Products, a Christmas ornament manufacturer, operates at capacity. Constrained by machine time (200hrs/month), the company decides to drop the most unprofitable of its three
Sparkle Products, a Christmas ornament manufacturer, operates at capacity. Constrained by machine time (200hrs/month), the company decides to drop the most unprofitable of its three product lines. The accounting department came up with the following data from last years operations:
| Red | Green | Blue
|
Machine Time per Unit | 4.0 Hour | 1.6 Hours | 0.8 Hours |
Selling Price per Unit | $75.00 | $29.00 | $18.00 |
Less Variable Costs per Unit | 32.00 | 18.00 | 12.00 |
Contribution Margin | $38.00 | $11.00 | $6.00 |
Required:
Which line should Sparkle Products drop? Provide supporting calculations and include a brief write explaining to the team why (Hint: Use table to compute the contribution per machine hour because machine time is the constraint.)
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