Carter Inc

question 108

Essay

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

Profit Margin

Profit margin is a financial metric showing the percentage of revenue that remains as profit after all operating expenses are deducted from sales.

Investment Turnover

A ratio that measures the efficiency of a company’s use of its assets in generating sales or revenue; the ratio of net sales to average total assets.

Transfer Prices

Prices charged for the selling of goods and services between subsidiaries or divisions within the same company.

Variable Cost

Expenses that change in proportion to the level of production or business activity.