FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Contribution margin per constraint

Zion Metals Inc. has three grades of metal product, A1, B3, and E6. Financial data for the three grades are as follows:

    A1   B3   E6  
Revenue   $ 400,000   $ 578,000   $ 300,000  
Variable cost   $(250,000)   $(380,000)   $(270,000)  
Fixed cost   (105,000)   (118,800)   (20,000)  
Total cost   $(355,000)   $(498,800)   $(290,000)  
Operating income   $ 45,000   $ 79,200   $ 10,000  
Number of units   ÷ 15,000   ÷ 16,500   ÷ 5,000  
Operating income per unit   $ 3.00   $ 4.80   $ 2.00  

Zion Metals’ operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production constraint. The furnace hours required per unit of each product are as follows:

A1:   8 hours  
B3:   10 hours  
E6:   6 hours  

The Marketing Department is considering a new marketing and sales campaign. Which product should be emphasized in the marketing and sales campaign in order to maximize profitability? ______________

Options 

a. Type A1

b. Type B3

c. Type E6

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