Posted: March 6th, 2017

Braun’s Brakes manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models.

Braun’s Brakes 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:
Selling price: $50 for X, $60 for Y, $70 for Z
Direct materials: 6 for all
Direct labor ($12 per hour): 12 for X and Y, and 24 for Z
Variable support costs ($4 per machine hour): 4 for X, and 8 for Y and Z
Fixed support costs: 10 for all

a) Which model has the greatest contribution margin per unit?
b) Which model has the greatest contribution margin per machine hour?
c) If there is excess capacity, which model is the most profitable to produce? Why?