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Exercise 10-13 Utilization of a Constrained Resource [LO5, LO6]

Banner 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	$	130			$	140			$	140
Variable costs:
Direct materials		64.50				44.00				84.80
Direct labor		15.00				30.00				12.00
Variable manufacturing overhead		5.00				10.00				4.00
Total variable cost		84.50				84.00				100.80
Contribution margin	$	45.50			$	56.00			$	39.20
Contribution margin ratio		35	%			40	%			28	%

Due to a strike in the plant of one of its competitors, demand for the companys 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 $6 per hour, and only 3,170 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.)

	A	B	C
Contribution margin per labor hour	$	$	$

2.	Which orders would you recommend that the company work on next weekthe orders for product A, product B, or product C?
	Product C Product B Product A

3.

By paying overtime wages, more than 3,170 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 intermediate calculations and final answers to 2 decimal places.)

Maximum amount

$ per hour

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