ABC Manufacturing produces two products, per the cost structure below. Fixed manufacturing costs are allocated...
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ABC Manufacturing produces two products, per the cost structure below. Fixed manufacturing costs are allocated at a rate of $1.00 per machine hour. Cost per unit: Product A Product B Selling price $4.00 $3.00 Variable manufacturing cost $2.00 $1.50 Fixed manufacturing cost $0.75 $0.20 Variable selling cost $1.00 $1.00 The sales manager wants to increase advertising by $160,000 fo r the most profitable product. ABC Manufacturing has capacity of 100,000 machine hours. Required. a. On which product should the sales manager spend the advertising budget? Why? b. If demand for the product chosen in part (a) exceeds the firms current capacity, compute ABC Manufacturings total contribution margin . c. The sal es manager does not want to exit the market for either Product A or Product B, but instead wants to maintain a minimum production volume of 20,000 units of the less - profitable product. At that minimum production volume, what price must ABC M anufacturing c harge on the less - profitable product in order to generate a total contribution margin for the firm equivalent to your answer in part (b)? d. Compute the percentage markup on the unit variable cost for the less - profitable product required to generate the price identified in part (c).
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