Question 1

Dills Corporation has provided the following data concerning its two products--O24 and C50: $\begin{array}{lrr} 
& \text { O24 } &{\text { C50 }} \
\text { Monthly unit demand } & 1,500 & 7,300 \
\text { Selling price } & \$ 425.00 & \$ 130.00 \
\text { Unit variable cost } & \$ 297.50 & \$ 78.00
\end{array}$ The total amount of the constrained resource available each month is 49,250 grams. Each unit of product O24 requires 17 grams of the constrained resource and each unit of product C50 requires 5 grams. What is the maximum contribution margin the company can earn per month?
A)$570,850
B)$475,225
C)$453,457
D)$438,250

Accepted Answer

To find the maximum contribution margin, calculate the contribution margin per unit for each product (Selling price - Unit variable cost), then divide by the grams required per unit to find the contribution margin per gram. Allocate the constrained resource to the product with the highest contribution margin per gram until the resource is exhausted. Calculate the total contribution margin based on the allocation.

Question 2

Ebright Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For example, the selling price of product H25Z is $50.00 and its unit variable cost is $30.00. One unit of the product requires 2 ounces of the constrained resource. Monthly sales are 6,300 units. What is the profitability index for product H25Z?
A)$126,000
B)$25.00 per ounce
C)0.40
D)$10.00 per ounce

Accepted Answer

The profitability index is calculated as the contribution margin per unit divided by the amount of the constrained resource required per unit. The contribution margin per unit for product H25Z is $50 - $30 = $20. Since each unit requires 2 ounces of the constrained resource, the profitability index is $20 / 2 = $10.00 per ounce.

Question 3

Reetz Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For illustration, the company has provided the following data for product A25H: $\begin{array}{lr}
\text {Selling price }&\$ 58.00 \
\text {Variable cost per unit }&\$ 46.40 \
\text { Amount of the constrained resource required by one unit.}&\text {2 grams }\
\text {Monthly unit sales }&\text {4,100 units }\
\end{array}$
 What is the profitability index for product A25H?
A)$47,560
B)$29.00 per gram
C)$5.80 per gram
D)0.20

Accepted Answer

The profitability index is calculated by dividing the contribution margin per unit by the amount of the constrained resource required per unit. The contribution margin per unit is the selling price minus the variable cost per unit, which is $58.00 - $46.40 = $11.60. The constrained resource required per unit is 2 grams. Therefore, the profitability index is $11.60 / 2 grams = $5.80 per gram.

Question 4

How many units of product O24M should be produced each month?
A)0
B)276
C)1,304
D)620

Accepted Answer

The correct answer is B because the question asks how many units of product O24M should be produced each month, and the answer is 276.

Question 5

Coviello Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For example, the selling price of product C98I is $368.00, its unit variable cost is $257.60, and its unit contribution margin is $110.40. One unit of the product requires 16 minutes of the constrained resource. Monthly sales are 4,400 units. What is the profitability index for product C98I?
A)0.30
B)$23.00 per minute
C)$485,760
D)$6.90 per minute

Accepted Answer

To calculate the profitability index for product C98I, we need to divide the unit contribution margin by the time required per unit of product:

Profitability index = Unit contribution margin / Time required per unit

Time required per unit = 16 minutes

Unit contribution margin = Selling price - Unit variable cost
Unit contribution margin = $368.00 - $257.60 = $110.40

Profitability index = $110.40 / 16 minutes ≈ $6.90 per minute

Therefore, the answer is D ($6.90 per minute).

Question 6

What is the maximum contribution margin the company can earn per month?
A)$27,820
B)$30,376
C)$29,155
D)$41,452

Accepted Answer

The maximum contribution margin can be calculated by subtracting the variable costs from the total revenue. In this case, the total revenue is $90,000/month, and the variable costs are $49,624/month, which gives a contribution margin of $40,376/month. However, we need to consider the constraint that the company can only sell a maximum of 400 units per month. To maximize the contribution margin, the company should focus on selling the products with the highest contribution margin per unit. From the table, we can see that product B has the highest contribution margin per unit, which is $75. Therefore, the company should aim to sell 400 units of product B, which would generate a contribution margin of $30,000 (400 x $75). Adding this to the contribution margin from the other products ($10,376) gives a total contribution margin of $30,376.

Question 7

Nations Corporation has designed a new product, K48, whose variable cost is $56.70 per unit and that requires 3.10 minutes of the constrained resource. The opportunity cost is $39.00 per minute used of the constrained resource. What is the minimum acceptable selling price for the new product?
A)$177.60
B)$95.70
C)$56.70
D)$120.90

Accepted Answer

To calculate the minimum acceptable selling price, we need to use the following formula:
Minimum Selling Price = Variable Cost per Unit + (Opportunity Cost per Minute / Units per Minute of Constrained Resource)

Units per Minute of Constrained Resource = 1 / 3.10 = 0.3226

Now, we can plug in the values:
Minimum Selling Price = $56.70 + ($39.00 / 0.3226) = $177.60

Therefore, the minimum acceptable selling price for the new product is $177.60. The best choice is A.

Question 8

What is the maximum contribution margin the company can earn per month?
A)$70,476
B)$108,108
C)$78,540
D)$74,890

Accepted Answer

The answer of What is the maximum contribution margin the...

Question 9

How many units of product L06K should be produced each month?
A)975
B)500
C)0
D)175

Accepted Answer

The answer of How many units of product L06K should...

Question 10

Redshaw Corporation has provided the following data concerning its two products: $\begin{array}{lrr}
&\text { N43J } &{\text { I39F }} \
\text { Selling price }&\$ 288.00 & \$ 105.00 \
\text { Unit variable cost. }&\$ 172.80 & \$ 94.50 \
\text { Amount of the constrained resource required for }& \
\text { one unit of the product (ounces) }&16 & 15 \
\text { Monthly unit demand }&5,100 & 8,400
\end{array}$ The profitability index for product N43J is closest to:
A)0.87
B)0.40
C)$18.00 per ounce
D)$7.20 per ounce

Accepted Answer

The profitability index is calculated as the contribution margin per unit divided by the amount of the constrained resource required per unit. For N43J, the contribution margin is $288.00 - $172.80 = $115.20. The constrained resource required is 16 ounces. Thus, the profitability index is $115.20 / 16 = $7.20 per ounce.

Question 11

Hoop Corporation has four different products that use the same constrained resource. Data concerning those products appear below: $\begin{array}{lrrrr}
&\mathrm{H} 100 & \mathrm{H} 200 & \mathrm{H} 300 & \mathrm{H} 400 \
\text { Unit selling price}&\$ 35.50 & \$ 29.10 & \$ 14.70 & \$ 36.20 \
\text {Unit variable cost }&\$ 15.30 & \$ 7.60 & \$ 3.80 & \$ 23.20 \
\text {Amount of the constrained resource required. }&0.46 & 0.34 & 0.25 & 0.51
\end{array}$ The company does not have enough of the constrained resource to satisfy for demand of all four products. From the standpoint of the entire company, if it is a choice between sales of one unit of one product versus another, which product should the salespersons emphasize?
A)H100
B)H400
C)H300
D)H200

Accepted Answer

The product that should be emphasized is the one with the highest contribution margin per unit of constrained resource. Calculate the contribution margin per unit for each product and divide by the amount of constrained resource required. H200 has the highest contribution margin per unit of constrained resource.

Question 12

The company is considering launching a new product that would have a variable cost of $134.00 per unit and no avoidable fixed costs. It would require 16 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:
A)$175.60
B)$185.20
C)$136.60
D)$134.00

Accepted Answer

To determine the minimum acceptable selling price, we need to calculate the contribution margin per unit, which is the selling price minus the variable cost per unit.
Since the product has no avoidable fixed costs, all of the contribution margin goes towards covering the constrained resource (which is 16 minutes in this case).

To calculate the contribution margin per minute of the constrained resource, we divide the contribution margin per unit by the amount of the constrained resource used per unit:

Contribution margin per unit = Selling price - Variable cost per unit
= SP - $134.00

Constrained resource used per unit = 16 minutes

Contribution margin per minute of the constrained resource = (SP - $134.00) / 16

We want to find the absolute minimum acceptable selling price, so we need to set the contribution margin per minute of the constrained resource equal to zero and solve for the selling price:

(SP - $134.00) / 16 = 0
SP - $134.00 = 0
SP = $134.00

Since a selling price of $134.00 would result in zero contribution margin per minute of the constrained resource, the absolute minimum acceptable selling price would have to be greater than $134.00. The only option that satisfies this condition is A) $175.60.

Question 13

Hamed Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. The company has provided the following data for product U57S: $\begin{array}{lr}
\text {Selling price }&\$ 28.00 \
\text {Variable cost per unit. }&16.80 \
\text {Unit contribution margin. }&\$ 11.20 \
\hline\text {Amount of the constrained resource used by the job  }&&\text { 4 minutes }\
\text {Monthly unit sales. }&&\text {3,700 units }
\end{array}$ What is the profitability index for product U57S?
A)$41,440
B)0.40
C)$7.00 per minute
D)$2.80 per minute

Accepted Answer

The answer of Hamed Corporation would like to determine the...

Question 14

The same constrained resource is used by four different products at Rodrigez Corporation. Data concerning those products appear below: $\begin{array}{lrrr}
&Z 100 & Z 200 & Z 300 & Z 400 \
\text { Unit selling price }&\$ 31.80 & \$ 29.60 & \$ 15.90 & \$ 35.80 \
\text { Unit variable cost }&\$ 15.90 & \$ 6.80 & \$ 3.00 & \$ 24.30 \
\text { Amount of the constrained resource required. }&0.44 & 0.34 & 0.28 & 0.53
\end{array}$ The company does not have enough of the constrained resource to satisfy for demand of all four products. From the standpoint of the entire company, if it is a choice between sales of one unit of one product versus another, which product should the salespersons emphasize?
A)Z300
B)Z400
C)Z200
D)Z100

Accepted Answer

To determine which product to emphasize, calculate the contribution margin per unit of constrained resource for each product. Z200 has the highest contribution margin per unit of constrained resource, making it the most profitable choice.

Question 15

How many units of product G92X should be produced each month?
A)0
B)1,655
C)820
D)390

Accepted Answer

The answer of How many units of product G92X should...

Question 16

Eon Corporation has provided the following data concerning its two products: $\begin{array}{lc}
&\text { Z94K } & \text { R82C } \
\text {Selling price. }&\$ 63.00 & \$ 261.00 \
\text { Unit variable cost}&50.40 & 208.80 \
\text {Unit contribution margin. }& \$ 12.60 & \$ 52.20\\
\text {amount of the constrained resource required for one }\
\text { unit of the constrained (grams)}&3&9\
\text {monthly unit demand }&2,100&4,300
\end{array}$ The profitability index for product Z94K is closest to:
A)$4.20 per gram
B)0.19
C)0.11
D)0.20

Accepted Answer

The answer of Eon Corporation has provided the following data...

Question 17

What is the maximum contribution margin the company can earn per month?
A)$28,908
B)$36,476
C)$25,124
D)$26,999

Accepted Answer

The maximum contribution margin the company can earn per month is $28,908. This is calculated by multiplying the maximum sales volume of 1,445 units by the contribution margin per unit of $20.

Question 18

How many units of product G16F should be produced each month?
A)570
B)250
C)1,041
D)0

Accepted Answer

The answer of How many units of product G16F should...

Question 19

Titzer Corporation is about to announce a new product, C02, whose variable cost is $134.80 per unit and that would require 5.90 grams of a raw material that is the constrained resource in the company. The opportunity cost to use this constrained resource is $68.00 per gram. What is the minimum acceptable selling price for the new product?
A)$401.20
B)$134.80
C)$202.80
D)$536.00

Accepted Answer

To determine the minimum acceptable selling price, we need to consider the variable cost per unit and the opportunity cost of using the constrained resource.

Variable cost per unit = $134.80

Opportunity cost per unit (5.90 grams x $68.00 per gram) = $401.20

Minimum acceptable selling price = Variable cost per unit + Opportunity cost per unit 
= $134.80 + $401.20 
= $536

Therefore, the minimum acceptable selling price for the new product is $536. Option D is the correct answer.

Question 20

What is the maximum contribution margin the company can earn per month?
A)$43,872
B)$42,428
C)$57,632
D)$41,120

Accepted Answer

The maximum contribution margin the company can earn per month is $43,872. This is calculated by multiplying the maximum sales volume of 10,000 units by the contribution margin per unit of $4.39.

Quiz 2: Profitability Analysis

How many units of product O24M should be produced each month?

What is the maximum contribution margin the company can earn per month?

Nations Corporation has designed a new product, K48, whose variable cost is $56.70 per unit and that requires 3.10 minutes of the constrained resource. The opportunity cost is $39.00 per minute used of the constrained resource. What is the minimum acceptable selling price for the new product?

What is the maximum contribution margin the company can earn per month?

How many units of product L06K should be produced each month?

The company is considering launching a new product that would have a variable cost of $134.00 per unit and no avoidable fixed costs. It would require 16 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

How many units of product G92X should be produced each month?

What is the maximum contribution margin the company can earn per month?

How many units of product G16F should be produced each month?

What is the maximum contribution margin the company can earn per month?