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Kanye West, Inc. manufactures a line of hand crafted I-Pad covers and an I-Pad stand. Demand for the covers is increasing, and management requests assistance from you in determining the best sales and production mix for the coming year. The company has provided the following data: Demand Selling Next year Price DirectDirect (units) per UnitMaterials Labor 22,000 $39.00 $3.00 35,000 $28.00 $2.10 $2.40 31,000 $21.00 $3.90 43,000 $21.00 $3.90 20,000 $18.00 $1.50$1.80 Product Flash $3.60 ue Mark Stencil Handsfree $8.40 $5.40 The following additional information is available a. The company’s plant has a capacity of 119,650 direct labor-hours per year on a single-shift basis. Thee company’s present employees and equipment can produce all five products b. The direct labor rate of $12.00 per hour is expected to remain unchanged during the coming year c. Fixed costs total $356,000 per year. Variable overhead costs are $4.00 per direct labor-hour. d. All of the company’s nonmanufacturing costs are fixed e. The company’s finished goods inventory is negligible and can be ignored Required 1. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the “S” sign in your response.) Contribution margin per DLH Product Flash ue Mark Stencil Handsfree
Expert Answer
In the given case the material and processing cost related to Manganese is one third of 28,000, i.e; $9,333.33.
Further on split off the selling price of manganese is $37,000 and the overall profit is $27,666.67.
On further processing the selling price of manganese becomes $62,000 with a further processing cost of $11,000.
Hence the overall profit becomes $62,000 – $9,333.33 – $11,000 = $41,666.67.
Therefore it is more profitable that the manganese should be further processed as the profit is higher.
