Exam 15: Profitability Analysis

Florez Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 10,000 minutes each month.Each unit of product U98W requires 19 minutes on this machine and each unit of product M01S requires 7 minutes on this machine. -What is the maximum contribution margin the company can earn per month?

Macha Corporation has four different 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?

Kuchler 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. -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?

The opportunity cost of using a unit of the constrained resource in a volume trade-off decision is determined by the profitability index of the company's least profitable product--even if none of that product is currently being made.

Ryce Corporation is about to announce a new product,C72,whose variable cost is $118.70 per unit and that would require 9.40 grams of a raw material that is the constrained resource in the company.The opportunity cost to use this constrained resource is $60.00 per gram.What is the minimum acceptable selling price for the new product?

Demeester 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 Y56G requires 10 minutes on this machine and each unit of product K46X requires 3 minutes on this machine. -What is the maximum contribution margin the company can earn per month?

Mcbee Products Inc.makes two products--C38S and V81Z.Product C38S's selling price is $91.00 and its unit variable cost is $72.80.Product V81Z's selling price is $200.00 and its unit variable cost is $180.00.The monthly demand is 890 units for product C38S and 680 units for V81Z.The constrained resource is a particular machine that is available for 10,000 minutes each month.Each unit of product C38S requires 7 minutes on this machine and each unit of product V81Z requires 10 minutes on this machine. -The company is considering launching a new product that would have a variable cost of $191.00 per unit and no avoidable fixed costs.It would require 4 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:

Podkowka Corporation has two products that use the same constrained resource--a critical raw material. The total amount of the constrained resource available is 10,400 grams. 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? d.The company is considering launching a new product whose variable cost is $112 and that requires 10 grams of the constrained resource.What is the minimum selling price for the new product?

Manchester Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions.For example,the selling price of product G94T is $304.00 and its unit variable cost is $243.20.One unit of the product requires 16 ounces of the constrained resource.Monthly sales are 9,300 units.What is the profitability index for product G94T?

Alberding Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions.For illustration,the company has provided the following data for product S06K: What is the profitability index for product S06K?

The company is considering launching a new product that would have a variable cost of $117.00 per unit.It would require 6 minutes of the constrained resource.The absolute minimum acceptable selling price for the new product should be:

The management of Radke Corporation has provided the following data concerning its two products--F74 and E50: The constrained resource is a particular machine that is available for 10,200 minutes each month.Each unit of product F74 requires 7 minutes on this machine.Each unit of product E50 requires 16 minutes on this machine. -What is the maximum contribution margin the company can earn per month?

A company that makes horsehair cowboy belts cannot meet the demand for belts due to a limited supply of artisans who know how to make the belts.To determine which models of the cowboy belts should be emphasized,the company should rank the models by dividing the selling price of each model by the amount of time an artisan requires to make the model.

When a company has a production constraint,the selling price of any new product should cover both its variable cost and the opportunity cost involved in using the constrained resource.

Wakeman Products Inc.makes two products--W28H and Z28D.Product W28H's selling price is $27.00 and its unit variable cost is $21.60.Product Z28D's selling price is $170.00 and its unit variable cost is $153.00.The monthly demand is 2,030 units for product W28H and 730 units for Z28D.The constrained resource is a particular machine that is available for 9,500 minutes each month.Each unit of product W28H requires 3 minutes on this machine and each unit of product Z28D requires 10 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?

Relative profitability measures should only be used when:

Leeth Corporation is considering the following six long-term projects: Only $50,100 is available for investment in these projects. Required: a.Determine which projects should be accepted. b.Determine the total net present value of all of the accepted projects if your plan from part (a) above is adopted.

Hofbauer Corporation's two products have the following characteristics: The constrained resource is a particular machine that is available for 10,400 minutes each month.Each unit of product M73O requires 6 minutes on this machine and each unit of product M26B requires 8 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 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 relatively profitable should be retained.

Blomstrom Products Inc.makes two products--N81W and V55S.Product N81W's selling price is $20.00 and its unit variable cost is $12.00.Product V55S's selling price is $108.00 and its unit variable cost is $97.20.The monthly demand is 3,940 units for product N81W and 1,140 units for V55S.The constrained resource is a particular machine that is available for 10,400 minutes each month.Each unit of product N81W requires 2 minutes on this machine and each unit of product V55S requires 6 minutes on this machine. -What is the maximum contribution margin the company can earn per month?