ACME Incorporated produces multiple products. Data per unit for Product A is as follows: Selling price $25
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Question:
ACME Incorporated produces multiple products. Data per unit for Product A is as follows:
Selling price | $25 |
Direct material | 12 |
Direct labour | 5 |
Variable overhead | 2 |
Fixed overhead | 3 |
The direct labour rate is $20 per hour and material costs $3 per gram.
Required:
- Calculate the profitability of the product (profitability index) if there is a limit on the amount of labour available. (3 marks)
- If Product B has a profitability index of $18, should the company focus on Product A or Product B to maximize profit?
Related Book For
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu
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