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Problem 6-4A (Video) Tanek Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Problem 6-4A (Video)Tanek Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Tanek is currently operating at full capacity with limited machine time.
Sales and production information relevant to each model follows.
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Calculate contribution margin per unit.
Ignoring the machine time constraint, which single product should Tanek Industries produce?
What is the contribution margin per unit of limited resource for each product? (Round answers to 2 decimal places, e.g. 10.50.)
If additional machine time could be obtained, how should the additional time be used?
Expert Solution
Part A
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Product
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Economy
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Standard
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Deluxe
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| Selling price | $40 | $67 | $134 | |||
| Less: Variable costs | 21 | 27 | 62 | |||
| Contribution margin per unit | $19 | $40 | $72 | |||
Part B
Ignoring the machine time constraint, the Deluxe product should be produced because it has the highest unit contribution margin.
Part C
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Product
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Economy
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Standard
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Deluxe
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| Contribution margin per unit (a) | $19 | $40 | $72 | |||
| Machine hours required (b) | 0.5 | 0.8 | 1.6 | |||
| Contribution margin per limited resource (a)/(b) | $38.00 | $50.00 | $45.00 | |||
[(Econ.: ($40 - $21) ÷ 0.5 = $38.00); (Std.: ($67 - $27) ÷ 0.8 = $50.00); (Deluxe: ($134 - $62) ÷ 1.6 = $45.00)]
[(Econ.: UCM ÷ MH/unit = CM/MH); (Std.: UCM ÷ MH/unit = CM/MH); (Deluxe: UCM ÷ MH/unit = CM/MH)]
Part D
If additional machine hours become available, the additional time should be used to produce the Standard product since it has the highest contribution margin per machine hour.
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