Ralph's Mufflers Manufactures Three Different Product Lines,Model X,Model Y,and Model

question 25

Essay

Ralph's Mufflers 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:
$\begin{array}{lrrr}&\text { Model X }&\text { Model Y }&\text { Model Z }\\\text { Selling price } & \$ 160 & \$ 180 & \$ 200 \\\text { Direct materials } & 60 & 60 & 60 \\\text { Direct labor ( } \$ 20 \text { per hour) } & 30 & 30 & 40 \\\text { Variable support costs }(\$ 10 \text { per machine-hour) } & 10 & 20 & 20 \\\text { Fixed support costs } & 40 & 40 & 40\end{array}$ a.For each model,compute the contribution margin per unit.
b.For each model,compute the contribution margin per machine-hour.
c.If there is excess capacity,which model is the most profitable to produce? Why?
d.If there is a machine breakdown,which model is the most profitable to produce? Why?
e.How can Ralph encourage her sales people to promote the more profitable model?

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Definitions:

Disposable Income

The disposable capital for households' spending and saving endeavors after income taxes.

Consumption

The process of purchasing goods and services to fulfill the needs and wants of individuals.

Average Propensity

The ratio of total consumption to total income, indicating how much income is spent rather than saved.

Save

Setting aside money or other resources for future use or in case of emergencies.