AF201 - MANAGERIAL ACCOUNTING

WEEK 12 - LECTURE ILLUSTRATION QUESTIONS

INFORMATION FOR PRODUCT-MIX DECISIONS

Reading: Chapter 20

PRODUCT MIX DECISIONS (EX. 20.29)

Active Active
Knee Back
UNIT SALE PRICE $45.00 $60.00
LESS
DIRECT MATERIAL 14.00 10.00
DIRECT LABOUR 4.00 10.00
VARIABLE OVERHEAD 4.00 14.00
VARIABLE S & AD. EXP 2.00 1.00
UNIT CONTR. MARGIN $21.00 $25.00

WHICH PRODUCT IS MORE PROFITABLE?

THE LIMITED RESOURCE IS HIGHLY SKILLED

LABOUR THAT IS USED ON BOTH PRODUCTS.

Wage rate: $21 per hour.

West1 West2
UNIT CONTR. MARGIN $ $
TIME UNITS REQD. PER UNIT
1
CONTR. MARGIN PER TIME UNIT
West1: ($ ) $
West2: ($ ) $

THEREFORE _____ IS THE MORE

PROFITABLE PRODUCT

Semester 2, 2010 Final Exam – Q4 (b)

Pricing & Product mix.

The Dash Company manufactures two products: A and B. Information about the
products is as follows:

Product A Product B
Revenue per unit $150 $125
Variable costs per unit 80 70
Contribution margin per unit $ 70 $ 55_

Total demand 15,000 units 12,000 units

Machine hours per unit 0.5 MH 0.25MH

There are 5,000 machine hours available during the quarter.

REQUIRED

1. Which of the products should Dash Company produce if it can only produce
one of the products? (4 marks)

2. Using your decision in requirement (1) above, what is Dash’s total contribution
margin? (6 marks)

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SEMESTER 2, 2012 FINAL EXAM

4. PRODUCT MIX

Santana Company has met all production requirements for the current month and
has an opportunity to produce additional units of product with its excess capacity.
Unit selling prices and costs for three models on one of its product lines are as
follows:

No Frills Standard Super

Options
Selling price $30 $35 $50
Direct materials 9 11 11
Direct labor ($10/hour) 5 10 15
Variable overhead 3 6 9
Fixed overhead 3 6 6

Variable overhead is charged to products on the basis of direct labor dollars;

fixed overhead is charged to products on the basis of machine-hours.
REQUIRED

(i) If Santana Company has excess machine capacity and can add more labor
as needed (i.e. neither machine capacity nor labor is a constraint), the excess
production capacity should be devoted to the production of which product or
products? Show relevant calculations. (5 marks)

(ii) If Santana Company has excess machine capacity but a limited amount of
labor time, the production capacity should be devoted to producing which
product or products? Show relevant calculations. (5 marks)

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S1, 2022 Final Exam
QUESTION 4: PRODUCT MIX DECISIONS

Total Marks for this question: 20 marks

[Suggested time: 36 minutes]

Wechsler Ltd produces three products: A130, B324, and C587. All three products use the same direct
material, Brac. Unit data for the three products are:

Product
A130 B324 C587
Selling price $252 $168 $210
Variable costs:
Direct materials $72 $45 $27
Labor and other costs $84 $81 $120

Quantity of Brac per unit 8 kg. 5 kg. 3 kg.

The demand for the products far exceeds the direct materials available to produce the products. Brac
costs $9 per kilogram and a maximum of 5,000 kilograms is available each month. Wechsler must
produce a minimum of 200 units of each product.

REQUIRED

1. Calculate the contribution margin per kg for products A130, B324, and C587.
(6 marks)
2. How many units of product A130, B324 and C587 should Wechsler produce?
(8 marks)

3. Based on your answer in (2), calculate the contribution margins for product A130, B324, and
C587 (6 marks)

S2, 2022 Final Exam Q4(B)

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 Sealing Company manufactures three types of floppy disk storage units. Each of the three types
requires the use of a special machine that has a total operating capacity of 15,000 hours per year.
Information on the three types of storage units is as follows:

Basic Standard Deluxe

Selling price $9.00 $30.00 $35.00
Variable cost $6.00 $20.00 $10.00
Machine hours required 0.10 0.50 0.75

Sealing Company’s marketing director has assessed demand for the three types of storage units and
believes that the firm can sell as many units as it can produce.

REQUIRED

1. Calculate the contribution margin per machine hour for Basic, Standard and Deluxe storage
units. (3 marks)

2. (i) How many of each type of unit should be produced and sold to maximize the company’s
contribution margin? (2 marks)

(ii) Based on your answer in (i), what is the total contribution margin for the company? (2
marks)

3. Now, suppose that Sealing Company believes that it can sell no more than 12,000 of the deluxe
model but up to 50,000 each of the basic and standard models at the selling prices estimated.
(i) What product mix would you recommend (i.e. the number of units for each storage unit).
(3 marks)
(ii)What would the total contribution margin be? (4 marks)