The following are the selling price, variable costs, andcontribution margin for one unit of each of Banner Company’s threeproducts: A, B, and C:
| Product |
| |
| A | | B | | C |
| Selling price | $ | 130.00 | | | $ | 140.00 | | | $ | 140.00 | |
| | | | | | | | | | | |
| Variable costs: | | | | | | | | | | | |
| Direct materials | | 64.50 | | | | 44.00 | | | | 84.80 | |
| Direct labour | | 15.00 | | | | 30.00 | | | | 12.00 | |
| Variable manufacturing overhead | | 5.00 | | | | 10.00 | | | | 4.00 | |
| | | | | | | | | | | |
| Total variable cost | | 84.50 | | | | 84.00 | | | | 100.80 | |
| | | | | | | | | | | |
| Contribution margin | $ | 45.50 | | | $ | 56.00 | | | $ | 39.20 | |
| | | | | | | | | | | |
| Contribution margin ratio | | 35 | % | | | 40 | % | | | 28 | % |
| | | | | | | | | | | |
|
Due to a strike in the plant of one of its competitors, demand forthe company’s products far exceeds its capacity to produce.Management is trying to determine which product(s) to concentrateon next week in filling its backlog of orders. The direct labourrate is $6 per hour, and only 3,170 hours of labour time areavailable each week.
Required:
1. Compute the amount of contribution margin that will beobtained per hour of labour time spent on each product.(Round your intermediate calculations to 1 decimalplace. Round your answers to 2 decimalplaces.)
2. Which orders would you recommend that thecompany work on next week—the orders for product A, product B, orproduct C?
3. By paying overtime wages, more than 3,170hours of direct labour time can be made available next week. Up tohow much should the company be willing to pay per hour in overtimewages as long as there is unfilled demand for the three products?(Do not round intermediate calculations.Round your answer to 2 decimalplaces.)
