Brann Products, located in St. Cloud, Minnesota, produces two lines of electric toothbrushes: Deluxe and Standard. Because Brann can sell all the toothbrushes it produces, the owners are expanding the plant. They are deciding which product line to emphasize. To make this decision, they assemble the following data:
Per Unit
Deluxe Toothbrush Standard Toothbrush

Sales price............. $90 $46
Variable expenses...... 25 16
Contribution margin..... $65 $30
Contribution margin ratio....... 72.2% 65.2%
After expansion, the factory will have a production capacity of 4,900 machine hours per month. The plant can manufacture either 60 Standard electric toothbrushes or 27 Deluxe electric toothbrushes per machine hour.Requirements1. Identify the constraining factor for Brill Products.2. Prepare an analysis to show which product line to emphasize.

Question

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Respuesta :

stokholm stokholm · Answer 1 · 2019-08-12T08:21:30+02:00

Answer:

1. Constraining factor is limited machine hours = 4,900

2. Since contribution per machine hour is maximum of Standard Tooth Brush, we will produce the standard Tooth Brush at maximum capacity.

Explanation:

Provided Data as follows:

Particulars Deluxe Tooth Brush Standard Tooth Brush

Sales Price $90 $46

Variable Expenses $25 $16

Contribution Margin $65 $30

CM Ratio 72.2% 65.2%

Total contribution per machine hour

Units per machine hour 27 60

Contribution per hour $1,755 $1,800

Since contribution per hour is more of Standard tooth Brush, and the machine hours are limited, therefore,

1. Constraining factor is limited machine hours = 4,900

2. Since contribution per machine hour is maximum of Standard Tooth Brush, we will produce the standard Tooth Brush at maximum capacity.

Total contribution if deluxe Tooth brush produced = $1,755 [tex]\times[/tex] 4,900 = $8,599,500

Total contribution if Standard Tooth Brush is produced = $1,800 [tex]\times[/tex] 4,900 = $8,820,000

Additional profit in case of selling standard tooth brush = $8,820,000 - $8,599,500 = $220,500