Exam 21: Profitability Analysis

Omoyosi Corporation would like to determine the relative profitability of a number of jobs. For illustration purposes, the company has provided the following data for job V66L: What is the profitability index for job V66L?

To encourage salespersons to sell the most profitable products, they should be paid sales commissions as straight percentage of the selling price of each product.

Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

The same constrained resource is used by four different products at Swaim Corporation. Data concerning those products appear below: The company does not have enough of the constrained resource to satisfy for demand of all four products. From the standpoint of the entire company, if it is a choice between sales of one unit of one product versus another, which product should the salespersons emphasize?

The company is considering launching a new product that would have a variable cost of $53.00 per unit. It would require 4 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

What is the maximum contribution margin the company can earn per month?

Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

If salespersons are paid commissions that are a set percentage of sales, which product would they prefer to sell? In other words, if it is a choice between selling one unit of one product and one unit of another, which product would they prefer to sell?

Reddinger Corporation is about to launch a new product, Z49, whose variable cost is $143.70 per unit and that would require 5.80 centiliters of a key raw material that is the company's constrained resource. The opportunity cost of this raw material is $69.00 per centiliter used. Required: What advice would you give to the company concerning the price that should be charged for the new product Z49?

Relative profitability measures should be used only when the company is not faced with a constraint.

If sales revenues are used in the denominator in the profitability index for a product then:

The company is considering launching a new product that would have a variable cost of $169.00 per unit and no avoidable fixed costs. It would require 15 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

What is the maximum contribution margin the company can earn per month?

What is the maximum contribution margin the company can earn per month?

Tuell LLC is a consulting firm that is considering six projects for the upcoming period. The six projects under consideration are listed below, along with relevant data. The managing partner's time is the constraint in the firm. Only 113 hours of this constrained resource are available during the upcoming period. Required: a. Determine which projects should be accepted for the upcoming period. b. Determine the total incremental profit for the upcoming period if your plan from part (a) above is adopted.

The company is considering launching a new product that would have a variable cost of $181.00 per unit. It would require 14 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

What is the maximum contribution margin the company can earn per month?

Up to how much should the company be willing to pay to obtain enough of the constrained resource to satisfy demand for the two existing products?

Tork Corporation is about to announce a new product, J82, whose variable cost is $113.70 per unit and that would require 6.40 grams of a raw material that is the constrained resource in the company. The opportunity cost to use this constrained resource is $43.00 per gram. What is the minimum acceptable selling price for the new product?