Figures for Clear Waters Company are:
$$\begin{array} { l c c }
& \text { Product A } & \text { Product B } \
\text { Selling price per unit } & \$ 132 & \$ 156 \
\text { Variable cost per unit } & \underline { 108 } & \underline { \$ 4 } \
\text { Contribution margin } & \underline { \$ 24 } & \$ \underline { 72 }
\end{array}$$
It requires one labour hour to produce one unit of Product A and four labour hours to produce one unit of Product B. Assume overall demand is greater than the company's capacity to produce. If labour is the constraining factor the company should concentrate production on:

Question

Figures for Clear Waters Company are:
$$\begin{array} { l c c } 
& \text { Product A } & \text { Product B } \
\text { Selling price per unit } & \$ 132 & \$ 156 \
\text { Variable cost per unit } & \underline { 108 } & \underline { \$ 4 } \
\text { Contribution margin } & \underline { \$ 24 } & \$ \underline { 72 }
\end{array}$$
It requires one labour hour to produce one unit of Product A and four labour hours to produce one unit of Product B. Assume overall demand is greater than the company's capacity to produce. If labour is the constraining factor the company should concentrate production on:

Quizplus · Accepted Answer

Product A has a contribution margin of $24 per unit and requires 1 labour hour, resulting in a contribution margin per labour hour of $24. Product B, despite having a higher contribution margin per unit ($72), requires 4 labour hours, leading to a contribution margin per labour hour of $18 ($72/4). Therefore, Product A is more efficient in terms of contribution margin per labour hour, making it the better choice when labour is the constraining factor.

Figures for Clear Waters Company Are It Requires One Labour Hour to Produce One Unit of c