Exam 31: Profitability Analysis

The management of Rodwell Corporation has provided the following data concerning its two products—E99 and V09: The constrained resource is a particular machine that is available for 10,400 minutes each month. Each unit of product E99 requires 8 minutes on this machine. Each unit of product V09 requires 10 minutes on this machine. -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:

Gorey Products Inc. makes two products—K36L and W81H. Product K36L's selling price is $345.00 and its unit variable cost is $310.50. Product W81H's selling price is $256.00 and its unit variable cost is $230.40. The monthly demand is 430 units for product K36L and 890 units for W81H. The constrained resource is a particular machine that is available for 10,000 minutes each month. Each unit of product K36L requires 15 minutes on this machine and each unit of product W81H requires 8 minutes on this machine. -The company is considering launching a new product that would have a variable cost of $158.00 per unit and no avoidable fixed costs.It would require 9 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:

Bruck 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 D25Y: What is the profitability index for job D25Y?

Burrington Products Inc. makes two products—Z74I and R53Y. Product Z74I's selling price is $102.00 and its unit variable cost is $71.40. Product R53Y's selling price is $432.00 and its unit variable cost is $302.40. The monthly demand is 2,500 units for product Z74I and 470 units for R53Y. The constrained resource is a particular machine that is available for 9,900 minutes each month. Each unit of product Z74I requires 3 minutes on this machine and each unit of product R53Y requires 16 minutes on this machine. -The company is considering launching a new product that would have a variable cost of $160.00 per unit and no avoidable fixed costs.It would require 18 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:

Gorey Products Inc. makes two products—K36L and W81H. Product K36L's selling price is $345.00 and its unit variable cost is $310.50. Product W81H's selling price is $256.00 and its unit variable cost is $230.40. The monthly demand is 430 units for product K36L and 890 units for W81H. The constrained resource is a particular machine that is available for 10,000 minutes each month. Each unit of product K36L requires 15 minutes on this machine and each unit of product W81H requires 8 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?

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

Relative profitability should be measured by dividing the segment's market share by the amount of the constrained resource it requires.

Lachapelle Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions.The company has provided the following data for product A97B: What is the profitability index for product A97B?

The opportunity cost of using one unit of the constrained resource in a volume trade-off decision is equal to:

Heiskell Corporation has provided the following data concerning its two products: The profitability index for product F78P is closest to:

Coltey 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. 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?

The management of Kezar 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?

The constraint at Frayer Inc.is a key raw material.A total of 9,700 ounces of this constrained resource are available.Data concerning the company's two products,Z78 and D87,appear below: Each unit of product Z78 requires 5 ounces of the constrained raw material;each unit of product D87 requires 2 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 $157 and that requires 26 ounces of the constrained resource.What is the minimum acceptable selling price for the new product?

The constrained resource at Calabria Corporation is a key raw material.A total of 9,900 ounces of the constrained resource are available.Data concerning the company's two products follow: Product S28 requires 2 ounces of the constrained resource;product M16 requires 13 ounces. Required: a.Which product is most profitable,given the company's constraint? b.How much of each product should be produced? c.What is the total contribution margin if your plan in part (b)above is followed?

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 the daily incremental profit from serving each customer by the amount of the time it takes the chef each day to prepare the customer's meals.

Armster Corporation has provided the following data concerning its two products: The profitability index for product B10E is closest to:

Shorr Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 9,900 minutes each month. Each unit of product U29D requires 16 minutes on this machine and each unit of product X43P requires 2 minutes on this machine. -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:

The management of Rodwell Corporation has provided the following data concerning its two products—E99 and V09: The constrained resource is a particular machine that is available for 10,400 minutes each month. Each unit of product E99 requires 8 minutes on this machine. Each unit of product V09 requires 10 minutes on this machine. -What is the maximum contribution margin the company can earn per month?

Wakeland Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 10,300 minutes each month. Each unit of product F61C requires 5 minutes on this machine and each unit of product E01W requires 7 minutes on this machine. -How many units of product E01W should be produced each month?

Galapon Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 10,100 minutes each month. Each unit of product P66G requires 4 minutes on this machine and each unit of product H98V requires 18 minutes on this machine. -How many units of product H98V should be produced each month?