The senior management at Davis Watercraft would like to determine if it is possible to improve firm profitability by changing
The senior management at Davis Watercraft would like to determine if it is possible to improve firm profitability by changing their existing product mix. Currently, the product mix is determined by giving resource priority to the highest contribution margin watercraft. Davis Watercraft always has a contingent of 10 workers on hand; each worker is paid $25 per hour. Overhead costs are $35,000 per week. The plant operates 18 hours per day and 6 days per week. Labor is considered a fixed expense because workers are paid for their time regardless of their utilization. The production manager has determined that workstation 1 is the bottleneck. Detailed production information is provided below.
a. Using the traditional method, which bases decisions solely on a products contribution to profits and overhead, what is the product mix that yields the highest total profit? What is the resulting profit? b. Using the bottleneck-based method, what is the product mix that yields the highest total profit? What is the resultingprofit?
Contribution Margin Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Model Price Material Cost Weekly Demand Processing Time Station 1 Processing Time Station 2 Processing Time Station 3 Processing Time Station 4 20 mi $450 $400 $500 $50 $40 $110 00750 60 min 0min 30min Omn 0min 6 min 10 min 60min 0 min n 30 min 40 min
a A B C Price 450 400 500 Material Cost 50 00 40 00 110 00 Contribution Margin 400 360 390 When orde…View the full answer
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