Markov Fireworks Produces Two Products, Spinners and Sparklers

question 30

Essay

Markov Fireworks produces two products, spinners and sparklers. Spinners sell for $4.50 per unit; sparklers sell for $6.50 per unit. Variable costs for spinners and sparklers are respectively, $3.50 and $3.00. There are 3,600 direct labour hours per month available for producing one of the two products. Fixed manufacturing overhead cost is allocated at $1,000 per month. Spinners require 2 direct labour hours and sparklers require 5 direct labour hours.
Required:
1. Contribution margin per unit for each product.
2. Contribution margin per direct labour hour for each product.
3. The total number of products of each type that could be produced each month assuming the other product is not made.
4. Income for a month for each product assuming that it is the only one produced and sold.

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Definitions:

Variable Costs

Costs that change in proportion to the level of goods or services a business produces or sale, such as materials and labor.

Sales

The total amount of goods or services sold by a company within a specific period, generating revenue.

Operating Leverage

A financial ratio that measures the degree to which a firm can increase operating income by increasing revenue, highlighting the fixed versus variable costs structure.

Financial Leverage

The use of borrowed funds to increase the potential return on investment, amplifying both potential gains and losses.