Question 1

Hamed 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 U57S: $\begin{array}{lr}
\text {Selling price }&\$ 28.00 \
\text {Variable cost per unit. }&16.80 \
\text {Unit contribution margin. }&\$ 11.20 \
\hline\text {Amount of the constrained resource used by the job  }&&\text { 4 minutes }\
\text {Monthly unit sales. }&&\text {3,700 units }
\end{array}$ What is the profitability index for product U57S?

Accepted Answer

A) $41,440 
B) 0.40 
C) $7.00 per minute 
D) $2.80 per minute

Question 2

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

Accepted Answer

A) $94,088 
B) $66,080 
C) $67,547 
D) $69,192

Question 3

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?

Accepted Answer

A) $33.60 per minute 
B) $3.00 per minute 
C) $4.80 per minute 
D) $57.00 per minute

Question 4

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: $\begin{array}{rr}
&B 01 & \mathrm{P} 46 \
\text { Demand (units) }&660 & 570 \
\text { Selling price }&\$ 261.00 & \$ 276.00 \
\text { Variable cost }&\$ 234.90 & \$ 248.40
\end{array}$ 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?

Accepted Answer

The answer of The constraint at Mirsch Inc. is a...

Question 5

Eon Corporation has provided the following data concerning its two products: $\begin{array}{lc}
&\text { Z94K } & \text { R82C } \
\text {Selling price. }&\$ 63.00 & \$ 261.00 \
\text { Unit variable cost}&50.40 & 208.80 \
\text {Unit contribution margin. }& \$ 12.60 & \$ 52.20\\
\text {amount of the constrained resource required for one }\
\text { unit of the constrained (grams)}&3&9\
\text {monthly unit demand }&2,100&4,300
\end{array}$ The profitability index for product Z94K is closest to:

Accepted Answer

A) $4.20 per gram 
B) 0.19 
C) 0.11 
D) 0.20

Question 6

Relative profitability should be measured by dividing a segment's market share by its revenues.

Accepted Answer

A) True 
 B)False

Question 7

When a company has a production constraint, the selling price of any new product should cover both its fully allocated cost--including common fixed costs--and the opportunity cost involved in using the constrained resource.

Accepted Answer

A) True 
 B)False

Question 8

How many units of product G16F should be produced each month?

Accepted Answer

A) 570 
B) 250 
C) 1,041 
D) 0

Question 9

Minaya Corporation has two products, M20 and Y53, that use the same constrained resource--a critical raw material. Data concerning those products follow: $\begin{array}{lrr}
&\text { M20 } &{\text { Y53 }} \
\text { Selling price. }&\$ 192.00 & \$ 220.00 \
\text { Variable cost }&\$ 153.60 & \$ 176.00 \
\text { Constrained resource required per unit (grams) }&8 & 10 \
\text { Demand (units) }&820 & 760
\end{array}$ The total amount of the constrained resource available is 9,900 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?

Accepted Answer

The answer of Minaya Corporation has two products, M20 and...

Question 10

How many units of product R94X should be produced each month?

Accepted Answer

A) 490 
B) 275 
C) 0 
D) 951

Question 11

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?

Accepted Answer

A) $52.80 per minute 
B) $25.00 per minute 
C) $3.30 per minute 
D) $5.00 per minute

Question 12

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?

Accepted Answer

A) I400 
B) I300 
C) I200 
D) I100

Question 13

The company is considering launching a new product that would have a variable cost of $55.00 per unit. It would require 5 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

Accepted Answer

A) $87.00 
B) $61.40 
C) $55.00 
D) $91.00

Question 14

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 product whose production would be cut back as a result of using the constrained resource.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Dills Corporation has provided the following data concerning its two products--O24 and C50: $\begin{array}{lrr} 
& \text { O24 } &{\text { C50 }} \
\text { Monthly unit demand } & 1,500 & 7,300 \
\text { Selling price } & \$ 425.00 & \$ 130.00 \
\text { Unit variable cost } & \$ 297.50 & \$ 78.00
\end{array}$ The total amount of the constrained resource available each month is 49,250 grams. Each unit of product O24 requires 17 grams of the constrained resource and each unit of product C50 requires 5 grams. What is the maximum contribution margin the company can earn per month?

Accepted Answer

A) $570,850 
B) $475,225 
C) $453,457 
D) $438,250

Exam 2: Profitability Analysis

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?

Relative profitability should be measured by dividing a segment's market share by its revenues.

When a company has a production constraint, the selling price of any new product should cover both its fully allocated cost--including common fixed costs--and the opportunity cost involved in using the constrained resource.

How many units of product G16F should be produced each month?

How many units of product R94X should be produced each 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?

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 company is considering launching a new product that would have a variable cost of $55.00 per unit. It would require 5 minutes of the constrained resource. The absolute minimum acceptable selling price for the new product should be:

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 product whose production would be cut back as a result of using the constrained resource.

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