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Category > Accounting Posted 05 May 2017 My Price 10.00

Product pricing and profit analysis with bottleneck operations

 

Hercules Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is $15 per process hour. The fixed cost is $200,000. In addition, the cost analyst was able to determine the following information about the three    products:

 

High Grade

Good Grade

Regular Grade

Budgeted units produced

5,000

5,000

5,000

Total process hours per unit

12

11

10

Furnace hours per unit

4

3

2.5

Unit selling price

$280

$270

$250

Direct materials cost per unit

$90

$84

$80

The furnace operation is part of the total process for each of these three products. Thus, for example, 4.0 of the 12.0 hours required to process High Grade steel  are associated  with  the furnace.

Instructions

1.     Determine the unit contribution margin for each product.

2.     Provide an analysis to determine the relative product profitability, assuming that the furnace is a bottleneck.

 

 

Answers

Alpha Geek
(8)
Status NEW Posted 05 May 2017 11:05 AM My Price 10.00

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Attachments

file 1493983498-1315562_1_636295427626997785_Relative-product-profitability.xlsx preview (276 words )
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