Luxury Auto Care Company offers three different service packages (A, B, and C) to its customers. These
Question:
Luxury Auto Care Company offers three different service packages (A, B, and C) to its customers. These packages vary from a complete detailing of the automobile (wash, wax, carpet shampoo, etc.) to a simple hand wash. A limitation of 120 labor hours per week prevents Luxury from meeting the demand for its services. Information for the three service packages is as follows:
A B C
Unit selling price $100 $80 $50
Unit variable costs (60) (35) (25)
Unit contribution margin $ 40 $45 $25
Hours per unit 4 3 1
Package A has the highest selling price and Package B has the highest unit contribution margin. Package Cis shown here to have the highest contribution per hour.
A B C
Unit contribution margin $40 $45 $25
Hours per unit : 4 : 3 : 1
Contribution per hour $10 $15 $25
Following the rule of maximizing the contribution per unit of a constraining factor, Luxury should use its limited labor hours to sell Package C. As shown in the following analysis, any other plan would result in lower profits:
A B C
Highest Highest Highest
Selling Contribution Contribution
Price Per Unit Per
Per Unit Constraining Factor
Hours available 120 120 120
Hours per unit : 4 : 3 : 1
Weekly production-
in units 30 40 120
Unit contribution margin x$40 x $45 x $25
Total weekly-
contribution margin $1,200 $1,800 $3,000
Business Statistics In Practice
ISBN: 9780073401836
6th Edition
Authors: Bruce Bowerman, Richard O'Connell