Constrained Resources. Cycle, Inc., produces three types of bicycles: racer, cruiser, and climber. The bikes...
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Constrained Resources. Cycle, Inc., produces three types of bicycles: racer, cruiser, and climber. The bikes are produced in separate departments and sent to the quality testing department before being packaged and shipped. A labor-hour bottleneck has been identified in the quality testing department due to the high skill requirements of the job. Cycle, Inc., would like to optimize its use of labor hours by producing the two most profitable bikes. Information for each bike follows.
Quality Testing Labor Hours
Price
Variable Cost
Racer
1.25
$1,000
$400
Cruiser
1.00
500
300
Climber
1.00
800
450
Required:
Calculate the contribution margin per unit of constrained resource for each product.
Which two products would Cycle, Inc., prefer to produce and sell to optimize the use of labor hours in the quality testing department?
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