Table 7.5

A company makes four products that have the following characteristics: Product A sells for $50 but needs $10 of materials to produce; Product B sells for $75 but needs $30 of materials to produce; Product C sells for $100 but needs $50 of materials to produce; Product D sells for $150 but needs $75 of materials to produce. The processing requirements for each product on each of the four machines are shown in the table. Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand for each product is 80 units per week. In the questions that follow, the full cost method refers to maximizing the gross margin or product margin per unit for each product, the contribution margin approach refers to maximizing the contribution margin per unit for each product, and the bottleneck method refers to maximizing the throughput contribution margin for each product. Assume all products start at machine W then are processed in order at X, Y and Z. Assume each worker works one 40 hour shift per week and is paid $10 per hour. Further, weekly overhead for the plant is $6000. During your calculations, carry all work to three decimal places.

1. Use the information in Table 7.5, Based on throughput contribution margin and assuming direct labor is a relevant and variable cost, which product is the most profitable?

A

B

C

D

2. Use the information in Table 7.5 , For the product mix 80A, 80B, 80C, and 60 D. if work center W starts an additional 50 units of product A and keeps it in their department, what is the change in net income?

		Increases by more than $500
		No impact since the products are not sold
		Increases by more than $300 but less than $500
		Increases by less than $300

Processing Time (min/unit) A Work Center W 12 11 Processing Time (min/unit) A Work Center W 12 11