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Carter Inc. produces two products, A and B. Pertinent per-unit data follow: ...

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Accounting

Carter Inc. produces two products, A and B. Pertinent per-unit data follow:

A B
Sales Price $268 $225
Costs:
Direct Materials 80 40
Direct Labor 43 80
Variable factory overhead (based on direct labor hours) 60 40
Fixed factory overhead (based on direct labor hours) 30 20
Marketing expenses (all variable) 40 31
Total costs 253 211
Operating income $15 $14

There is insufficient labor capacity in the plant to meet the combined demand for both products. Both products are produced through the same production departments. The fixed factory overhead rate is $10 per direct labor hour. Assume that there are no avoidable fixed factory overhead costs.

Required:

1. Calculate the unit contribution margin for each of the two products.

2. Determine which product should be produced in priority, given the labor constraint, and explain why.

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