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Exercise 4: What is the contribution margin per labor hour for the 8x10 frames? And, which frames should have first priority in production? See circles on the printed exercise

EXERCISE 4: Constant Memories Inc. manufactures three different sizes of picture frames in the same manufacturing facility. Following is an analysis of sales prices and variable costs for each frame on a per unit basis: 5x7 8x10 11x14 Sales price per frame $ 6.00 $ 10.00 $ 16.00 Less: Variable Costs - Direct Materials 2.50 4.00 9.00 Direct Labor 1.50 2.75 3.50 Overhead costs 0.50 1.25 2.25 Unit Contribution Margin $ 1.50 $ 2.00 $ 1.25 7 Page Constant Memories only has a total of 8,000 Labor hours available (constraint) to produce frames. The following chart shows how many frames of each size can be produced per labor hour: 5x7 3.2 frames per hr 8x10 1.8 frames per hr 11x14 1.6 frames per hr Frames per Labor Hour Calculate the contribution margin per the constraint: 5x7 8x10 11x14 # of frames per Labor Hour X Unit Contribution Margin (UCM) Contribution Margin per Labor Hour $ In what order should constant Memories prioritize and allocate direct labor hours to each size of frames? In other words, which size frame should be given first, second and then third priority? Frame Size First Priority

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