Answer the Following Question(s)using the Information Below

question 175

Multiple Choice

Answer the following question(s) using the information below.Specialty Wheels Ltd.manufactures three different product lines, Model X, Model Y, and Model Z.Considerable market demand exists for all models.The following per unit data apply:

-Last year, a sailboard company produced two types of boards: a regular board for multi-purpose sailing; and, a special trick board used by experts for competitions.The regular board sells for $750 and the competition board sells for $1,350.The variable production costs are $250 and $400 respectively, and the company has $400,000 in fixed costs overall.Marketing staff have determined that the company should specialize in the competition boards only, and sell the regular boards, if at all, under a different brand name.Last year the company made a profit, selling twice as many regular boards as competition boards, resulting in a fixed cost allocation of $5.00 per board.It takes 6 hours of direct labour to make a regular board and 12 hours to make a competition board.The company worked at full capacity of 19,500 direct labour hours last year.Based on the above information only, which product or mix of products, should the company choose? Assume that any and all production can be sold.

• A)the regular board only, as it takes fewer direct labour hours to build
• B)both, as the company made a profit last year using this strategy
• C)the competition board only, as it has a higher contribution margin
• D)the regular board only, as it has the highest contribution margin per direct labour hour
• E)Any combination is equivalent, based on the contribution margin times the number of boards that could be sold.

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Definitions:

Market Price

The price at which goods and services are bought and sold in a competitive marketplace, reflecting supply and demand dynamics.

Price Ceiling

A price ceiling is a government-imposed limit on the price charged for a commodity, with the intention of keeping prices at an affordable level for consumers.

Team Structure

A structure that uses permanent and temporary cross-functional teams to improve lateral relations.

Sense Identification

The process of recognizing and understanding one's feelings, surroundings, or the current situation; often used in the context of personal or organizational development.