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Constrained Resource

Banner Company produces three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:

Selling price $ 61 $ 91 $ 81
Variable costs:
Direct materials 27 14 41
Direct labor 12 32 16
Variable manufacturing overhead 3.7 8.6 3.75
Total variable cost 42.7 54.6 60.75
Contribution margin $ 18.3 $ 36.4 $ 20.25
Contribution margin ratio 30 % 40 % 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 $12 per hour, and only 3,400 hours of labor time are available each week.

Requirement 1:
Compute the amount of contribution margin that will be obtained per hour of labor time spent on each product. (Round your answers to 2 decimal places.)

Contribution Margin $ $ $

Requirement 2:
By paying overtime wages, more than 3,400 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 answers to 2 decimal places.)

The upper limit of overtime wages for product A $
The upper limit of overtime wages for product B $
The upper limit of overtime wages for product C $

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Solution Summary

The solution explains the decision making process under constrained resource