Llano Corporation Has Four Products That Use the Same Constrained

question 26

Essay

Llano Corporation has four products that use the same constrained resource. Data concerning those products appear below:
The company does not have enough of the constrained resource to satisfy for demand of all four products.
Required:
a. If salespersons are paid commissions that are a set percentage of sales, which product would they prefer to sell? In other words, if it is a choice between selling one unit of one product and one unit of another, which product would they prefer to sell?
b. From the standpoint of the entire company, if it is a choice between sales of one unit of one product versus another, which product should the salespersons emphasize?

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Definitions:

Current Liability

A company's debt or obligation that is due within one year or within the normal operating cycle, whichever is longer.

Cumulative Preferred Shares

A type of preferred stock where dividends accumulate if not paid in a given year and must be paid out before any dividends can go to common stockholders.

Contributed Surplus

The excess amount paid by investors over the par value of shares, recorded in the shareholders' equity section of the balance sheet.

Retained Earnings

The amount of net earnings not distributed to shareholders as dividends but reinvested in the business or kept as reserves.