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StormLrd StormLrd
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4 years ago
Norton's Mufflers manufactures three different product lines: Model X, Model Y, and, Model Z.
Considerable market demand exists for all models. The following per unit data apply:
   Model X   Model Y   Model Z
Selling price   $80   $90   $100
Direct materials   30   30   30
Direct labour ($10 per hour)   15   15   20
Variable support costs ($5 per machine-hour)   5   10   10
Fixed support costs   20   20   20

Required:
a.   For each model, compute the contribution margin per unit.
b.   For each model, compute the contribution margin per machine-hour.
c.   If there is excess capacity, which model is the most profitable to produce? Why?
d.   If there is a machine breakdown, which model is the most profitable to produce? Why?
e.   How can Norton encourage her sales people to promote the more profitable model?
Textbook 

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
Authors:
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btpsandbtpsand
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4 years ago
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More questions for this book are available here
a.   The contribution margin per unit is:
   $30 for Model X ($80 - $30 - $15 - $5),
   $35 for Model Y ($90 - $30 - $15 - $10),
   and $40 for Model Z ($100 - $30 - $20 - $10).
b.   The contribution margin per machine-hour is
   $30 for Model X ($30 contribution margin/1.0 machine-hour per unit),
   $17.50 for Model Y ($35/2.0), and
   $20 for Model Z ($40/2.0).
c.   When there is excess capacity, Model Z is the most profitable because it has the greatest contribution margin per unit.
d.   When there are machine-hour capacity constraints, Model X is the most profitable because it has the greatest contribution margin per constrained resource.
e.   To encourage sales persons to promote specific products, Norton may want to provide marketing incentives such as higher sales commissions for products contributing the most to profits. Norton may also want to educate salespeople about the effects of constrained resources.
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