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Relevant costs regarding Excess machine capacity

Barker Enterprises has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and costs for three models of one of its product lines are as follows:

No Standard
Frill Options Super
Selling price 35 45 60
Direct materials 10 12 12
Direct labor ($15/hr.) 8 12 20
Variable Overhead 4 6 10
Fixed Overhead 3 5 5
total 10 10 13

Variable overhead is charged to products on the basis of direct labor dollars, fixed overhead is charged to products on the basis of machine hours.

Required

a) If Barker Enterprises has excess machine capacity and can add more labor as needed (neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product or products?

b) If Barker Enterprises has excess machine capacity but a limited amount of labor time, the production capacity should be devoted to producing which product or products?

Solution Preview

a) If Barker Enterprises has excess machine capacity and can add more labor as needed (neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product or products?

It should be ...

Solution Summary

This provide steps to calculate the relevant cost in the case of excess machine capacity

$2.19