Question

Darren Company produces three products with the following costs and selling prices: Product X Y Z Selling price per unit $40 $30 $35 Variable costs per unit 24 16 20 Contribution margin per unit $16 $14 $15 Direct labor hours per unit 4 2 3 Machine hours per unit 5 7 4 If Darren has a limit of 30,000 machine hours but no limit on units sold or direct labor hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is:

Answer 1

Darren Company

The ranking of the products from the most profitable to the least profitable use of the constrained resource is:

Z, X, and Y.

Step-by-step explanation:

a) Data and Calculations:

Product X Y Z

Selling price per unit $40 $30 $35

Variable costs per unit 24 16 20

Contribution margin per unit $16 $14 $15

Direct labor hours per unit 4 2 3

Machine hours per unit 5 7 4

Limiting factor = 30,000 machine hours

Contribution per limiting factor $3.20 $2.00 $3.75

Contribution per constrained resource:

X = $16/5 = $3.20

Y = $14/7 = $2.00

Z = $15/4 = $3.75