Duo Company manufactures two products, Uno and Dos. Contribution margin data follow. Uno Dos Unit sales $
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Question:
Duo Company manufactures two products, Uno and Dos. Contribution margin data follow.
Uno | Dos | ||||||
Unit sales | $ | 13.00 | $ | 31.00 | |||
Less variable cost: | |||||||
Direct material | $ | 7.00 | $ | 5.00 | |||
Direct labor | 1.00 | 6.00 | |||||
Variable overhead | 1.25 | 7.50 | |||||
Variable selling and administrative cost | 0.75 | 0.50 | |||||
Total variable cost | $ | 10.00 | $ | 19.00 | |||
Unit contribution margin | $ | 3.00 | $ | 12.00 | |||
Duo company’s production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn the same wage rate.
Required:
Calculate the contribution margin per scarce resource for each of the products assuming an arbitrary time period for which direct laborers earn $1.00 per unit.
Which of Duo Company’s products is most profitable?
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