Reference: 09-15
Madison Company produces three products with the following costs and selling prices: $$\begin{array} { | l | l | l | l | }
\hline & A & B & C \
\hline \text { Selling price per unit } & \$ 16 & \$ 21 & \$ 21 \
\hline \text { Variable cost per unit } & 7 & 11 & 13 \
\hline \text { Contribution margin per unit } & \$ 9 & \$ 10 & \$ 8 \
\hline \text { Direct labour hours per unit } & 1.0 & 1.5 & 2.0 \
\hline \text { Machine hours per unit } & 4.5 & 2.0 & 2.5 \
\hline
\end{array}$$
-If direct labour-hours are the company's production constraint, then the three products should be produced in which order?
A)C, A. B.
B)A, B, C.
C)A, C, B.
D)B, C, A.

Question

Reference: 09-15
Madison Company produces three products with the following costs and selling prices: $$\begin{array} { | l | l | l | l | } 
\hline & A & B & C \
\hline \text { Selling price per unit } & \$ 16 & \$ 21 & \$ 21 \
\hline \text { Variable cost per unit } & 7 & 11 & 13 \
\hline \text { Contribution margin per unit } & \$ 9 & \$ 10 & \$ 8 \
\hline \text { Direct labour hours per unit } & 1.0 & 1.5 & 2.0 \
\hline \text { Machine hours per unit } & 4.5 & 2.0 & 2.5 \
\hline
\end{array}$$
-If direct labour-hours are the company's production constraint, then the three products should be produced in which order?
A)C, A. B.
B)A, B, C.
C)A, C, B.
D)B, C, A.

Quizplus · Accepted Answer

When direct labour-hours are the constraint, the products should be prioritized based on their contribution margin per direct labour-hour. Product A has a contribution margin of $9 per 1.0 hour, B has $10 per 1.5 hours, and C has $8 per 2.0 hours. Calculating the contribution margin per direct labour-hour gives: A = $9/hour, B = $6.67/hour, and C = $4/hour. Thus, the order of production should prioritize the product with the highest contribution margin per direct labour-hour, which is A, then B, then C.

Reference: 09-15 Madison Company Produces Three Products with the Following

Reference: 09-15
Madison Company Produces Three Products with the Following