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Gunst Company produces three video games: Android, Bio-Mutant, and Cyclops. Cost and revenue data pertaining to...

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Accounting

Gunst Company produces three video games: Android, Bio-Mutant,and Cyclops. Cost and revenue data pertaining to each product areas follows:

AndroidBio-MutantCyclops
  Selling price$100$55$125
  Direct labor482460
  Direct materials9816
  Variable overhead749

At the present time, demand for each of the company's productsfar exceeds its capacity to produce them. Thus, management istrying to determine which of its games to concentrate on next weekin filling its backlog of orders. Gunst's direct labor rate is $12per hour, and only 1,000 hours of direct labor are available eachweek.

Determine the maximum total contribution margin the company canmake by its best use of the 1,000 available hours. (Do notround intermediate calculations.)

Answer & Explanation Solved by verified expert
4.2 Ratings (852 Votes)

Additional Units produced and sold for Bio Mutant (1000/2)=500

Maximum contribution will; be =$ 9500

Sales $   27,500.00
Variable cost per unit (500 x 36) $   18,000.00
Contribution margin $     9,500.00

Working

the unit that gives highest contribution margin per limited resourse should be produced.

Android Bio mutant Cyclops
Labor cost 48 24 60
Labor rate 12 12 12
Labor hours per unit 4 2 5
Statement of ranking indicating which product to produced first, second and third
Product
Android Bio mutant Cyclops
Sales price per unit $    100.00 $ 55.00 $        125.00
Variable cost per unit $       64.00 $ 36.00 $           85.00
Contribution margin per unit $       36.00 $ 19.00 $           40.00
Labor hour per unit             4.00         2.00                 5.00
Contribution margin per Labor hour $         9.00 $    9.50 $             8.00
Ranking II I III

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