Analyzing Profitability Considering a Scarce Resource Assume that Innovative Components Inc. produces only three different types of injection-molded knobs. It produces the Pointer Knob, which is used for on/off devices, the Instrument Knob, which is used for precision adjustment, and the Star Knob, which is used for snowblowers and lawnmowers. The factory machine capacity is the company's constraining resource. It operates at 90% capacity and management wants to devote the unused capacity to one of the products. The following data represents the current operations. Per-case data Sales price Variable cost Pointer Knob Instrument Knob Star Knob $20.00 8.00 $32.00 $6.00 26.00 2.00 Contribution margin 12.00 6.00 4.00 Fixed costs* 6.00 2.00 1.00 Net income $6.00 $4.00 $3.00 *Allocated on basis of machine hours at $2 per machine hour. REQUIRED Pointer Knob Instrument Knob Star Knob Contribution margin per machine hour: $ $ $ Which product should management produce with its extra capacity? ZO PTS

Analyzing Profitability Considering a Scarce Resource Assume that Innovative Components Inc. produces only three different types of injection-molded knobs. It produces the Pointer Knob, which is used for on/off devices, the Instrument Knob, which is used for precision adjustment, and the Star Knob, which is used for snowblowers and lawnmowers. The factory machine capacity is the company's constraining resource. It operates at 90% capacity and management wants to devote the unused capacity to one of the products. The following data represents the current operations. Per-case data Sales price Variable cost Pointer Knob Instrument Knob Star Knob $20.00 8.00 $32.00 $6.00 26.00 2.00 Contribution margin 12.00 6.00 4.00 Fixed costs* 6.00 2.00 1.00 Net income $6.00 $4.00 $3.00 *Allocated on basis of machine hours at $2 per machine hour. REQUIRED Pointer Knob Instrument Knob Star Knob Contribution margin per machine hour: $ $ $ Which product should management produce with its extra capacity? ZO PTS

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 5PA: Product pricing and profit analysis with bottleneck operations Hercules Steel Company produces three...

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