Question
This question has two parts: Part A and Part B. Answer both parts. Part A Total Blast Company (TBC) manufactures two products: Alpha (A) and
This question has two parts: Part A and Part B. Answer both parts.
Part A
Total Blast Company (TBC) manufactures two products: Alpha (A) and Beta (B). TBC could not satisfy the demand for both products because it is limited to 10,000 machine hours per year to produce its products.
Data on the products is as follows:
Alpha | Beta | |
Revenue per unit | $ 150 | $ 125 |
Variable costs per unit | 80 | 70 |
Contribution margin per unit | $ 70 | $ 55 |
Annual demand | 15,000 units | 12,000 units |
Machine hours (MH) per unit | 1.0 MH | 0.50 MH |
Required
a) Determine the contribution margin per machine hour for each product. Which of TBC's products is most profitable given its limited machine hours? Explain. (3 + 2 = 5 marks)
b) Determine how many units of each product TBC should produce given its limited machine hours and annual demand. Show all calculations necessary to prove your answer. (4 marks)
c) Determine the total contribution margin TBC would expect given your answer to (b) above. (3 marks)
Part B
Give an example of an irrelevant cost in a decision to Accept or Reject a Special Order. Explain why it is irrelevant. (3 marks)
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