Exam 13: Profitability Analysis

Whelchel Products Inc.makes two products-K12C and R25O.Product K12C's selling price is $56.00 and its unit variable cost is $33.60.Product R25O's selling price is $195.00 and its unit variable cost is $156.00.The monthly demand is 980 units for product K12C and 500 units for R25O.The constrained resource is a particular machine that is available for 10, 100 minutes each month.Each unit of product K12C requires 7 minutes on this machine and each unit of product R25O requires 15 minutes on this machine. What is the maximum contribution margin the company can earn per month?

Whelchel Products Inc.makes two products-K12C and R25O.Product K12C's selling price is $56.00 and its unit variable cost is $33.60.Product R25O's selling price is $195.00 and its unit variable cost is $156.00.The monthly demand is 980 units for product K12C and 500 units for R25O.The constrained resource is a particular machine that is available for 10, 100 minutes each month.Each unit of product K12C requires 7 minutes on this machine and each unit of product R25O requires 15 minutes on this machine. The company is considering launching a new product that would have a variable cost of $134.00 per unit and no avoidable fixed costs.It would require 16 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:

In the absence of a constraint, all business segments that are absolutely profitable should be retained.

Absolute profitability refers to the process of deciding which products to drop when a constraint forces trade-offs.

The profitability index is computed by dividing the incremental profit from a segment by the sales of the segment.

Eon Corporation has provided the following data concerning its two products: The profitability index for product Z94K is closest to:

The constraint at Mirsch Inc.is a key raw material.A total of 9, 600 ounces of this constrained resource are available.Data concerning the company's two products, B01 and P46, appear below: Each unit of product B01 requires 9 ounces of the constrained raw material;each unit of product P46 requires 12 ounces. Required: a.In the present circumstances, which product is most profitable? b.How much of each product should be produced? c.The company is considering launching a new product whose variable cost is $210 and that requires 9 ounces of the constrained resource.What is the minimum acceptable selling price for the new product?

A catering service has contracts with a number of customers to supply lunches on a daily basis.The chef has complained of the long hours she must work to prepare all of these lunches and has threatened to quit.It would be very difficult, if not impossible, to replace the chef.To reduce the pressure on the chef, some contracts may have to be cancelled.(The catering service can cancel any contract with seven days notice. )To help make this decision, the profitability of each customer should be measured by dividing amount the customer is charged by the amount of the time it takes the chef to prepare the customer's meals.

If a company is considering accepting a number of jobs, but there is insufficient production capacity to do all of them, then the jobs that require the greatest amount of the production capacity should be rejected.

Dorich 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 P86M: The amount of the constrained resource used by the job is 340 hours. What is the profitability index for job P86M?

The profitability index in a volume trade-off decision should be computed by:

The management of Liess Corporation has provided the following data concerning its two products: The constrained resource is a particular machine that is available for 9, 500 minutes each month. How many units of product B27D should be produced each month?

The same constrained resource is used by four different products at Hinchcliffe 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?

Gastineau Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 9, 600 minutes each month.Each unit of product J45Z requires 19 minutes on this machine and each unit of product W47E requires 7 minutes on this machine. 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?

Daisley Products Inc.makes two products-B17U and R94X.Product B17U's selling price is $110.00 and its unit variable cost is $66.00.Product R94X's selling price is $238.00 and its unit variable cost is $142.80.The monthly demand is 1, 290 units for product B17U and 490 units for R94X.The constrained resource is a particular machine that is available for 10, 300 minutes each month.Each unit of product B17U requires 5 minutes on this machine and each unit of product R94X requires 14 minutes on this machine. What is the maximum contribution margin the company can earn per month?

Krupka Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 9, 600 minutes each month.Each unit of product A88V requires 4 minutes on this machine and each unit of product O24M requires 10 minutes on this machine. How many units of product O24M should be produced each month?

Jacobus Corporation has four products that use the same constrained resource.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 management of Lantieri Corporation is reviewing its policies concerning compensation of salespersons.The company has four products that use the same constrained resource.Data concerning those products appear below: The company does not have enough of the constrained resource to satisfy for demand of all four products. Required: a.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? b.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?

Hamelinck Corporation would like to determine the relative profitability of a number of jobs.For example, the revenue from Job W06Z is $77, 000 and its avoidable costs amount to $69, 300, resulting in an incremental profit of $7, 700.Furthermore, the job requires 220 hours of the constrained resource.What is the profitability index for job W06Z?

The management of Tamondong Corporation has provided the following data concerning its two products: The constrained resource is a particular machine that is available for 10, 200 minutes each month. How many units of product E25Y should be produced each month?