Problem: Norton's Mufflers manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following unit data apply:
Model X Model Y Model Z
Selling Price $80 $90 $100
Direct Materials 30 30 30
Direct Labor ($10 per hour) 15 15 20
Variable costs ($5 per machine hour) 5 10 10
Fixed Costs 20 20 20
If there is a machine breakdown, which model is the most profitable to produce? Why?
How can Norton encourage their sales people to promote the more profitable model?