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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