Problem:
Aon Company produces three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:
Product
A B C
Selling price $120 $180 $130
Variable costs:
Direct materials 71.40 65.40 80.70
Direct labor 10.50 28.00 14.00
Variable
manufacturing overhead 2.10 5.60 2.80
Total variable cost 84.00 99.00 97.50
Contribution margin $ 36.00 $ 81.00 $ 32.50
Contribution margin ratio 30% 45 % 25 %
Due to a strike in the plant of one of its competitors, demand for the company's products far exceeds its capacity to produce. Management is trying to determine which product(s) to concentrate on next week in filling its backlog of orders. The direct labor rate is $7 per hour, and only 3,560 hours of labor time are available each week.
Required:
1. Compute the amount of contribution margin that will be obtained per hour of labor time spent on each product. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "tiny_mce_markerquot; sign in your response.)
Contribution margin per labor hour for A is?
Contribution margin per labor hour for B is?
Contribution margin per labor hour for C is?
2. Which orders would you recommend that the company work on next week"the orders for product A, product B, or product C?
Product A
Product C
Product B
3. By paying overtime wages, more than 3,560 hours of direct labor time can be made available next week. Up to how much should the company be willing to pay per hour in overtime wages as long as there is unfilled demand for the three products? (Round your answer to 2 decimal places. Omit the "tiny_mce_markerquot; sign in your response.)
Maximum amount $ per hour