Duo Company manufactures two products, Uno and Dos. Contribution margin data follow.

Uno Dos

Unit sales $ 13.00 $ 31.00

Less variable cost:

Direct material $ 7.00 $ 5.00

Direct labor 1.00 6.00

Variable overhead 1.25 7.50

Variable selling and administrative cost 0.75 0.50

Total variable cost $ 10.00 $ 19.00

Unit contribution margin $ 3.00 $ 12.00

Duo company's production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn the same wage rate.

Required:

1. Calculate the contribution margin per scarce resource for each of the products assuming an arbitrary time period for which direct laborers earn $1.00 per unit.

2. Which of Duo Company's products is most profitable?

Question

Drake Reeves

Business

29 December, 20:42

Duo Company manufactures two products, Uno and Dos. Contribution margin data follow.

Uno Dos

Unit sales $ 13.00 $ 31.00

Less variable cost:

Direct material $ 7.00 $ 5.00

Direct labor 1.00 6.00

Variable overhead 1.25 7.50

Variable selling and administrative cost 0.75 0.50

Total variable cost $ 10.00 $ 19.00

Unit contribution margin $ 3.00 $ 12.00

Duo company's production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn the same wage rate.

Required:

1. Calculate the contribution margin per scarce resource for each of the products assuming an arbitrary time period for which direct laborers earn $1.00 per unit.

2. Which of Duo Company's products is most profitable?

+5

Answers (1)

Know the Answer?

Kyla · Answer 1

1. Uno = $3

Dos = $2

2. Uno

Explanation:

1. The computation of the contribution margin per scarce resource for each of the products is shown below:

= Unit contribution margin : direct laborers per unit

For Uno, it would be

= $3 : $1 = $3

For Dos, it would be

= $12 : $6 = $2

2. As we compare the contribution margin, the Uno has more unit of contribution margin than the Dos. So, Uno is most profitable