Question

Speedy Co. manufactures four products. Direct materials and direct labor are available in sufficient quantities, but machine capacity is limited to 3,000 hours. Cost revenue data for the four products are given below:
Product Product Product Product
A B C D
Selling price per unit $36 $42 $46 $56
Variable cost per unit $19 $16 $25 $37
Units produced per
Machine hour 3 4 2 3

Of the four products which is the most profitable for Speedy Co?
Product A.
Product B.
Product C.
Product D.

Answer 1

Answer:

The most profitable product for Speedy Co is B.

Explanation:

Let's calculate the profitability of each product, this way:

Product A:

• Selling price per unit = $ 36
• Variable cost per unit = $ 19
• Units produced per machine hour = 3
• Machine capacity = 3,000 hours

Profitability = (36 - 19) * 3 * 3,000

Profitability = $ 153,000

Product B:

• Selling price per unit = $ 42
• Variable cost per unit = $ 16
• Units produced per machine hour = 4
• Machine capacity = 3,000 hours

Profitability = (42 - 16) * 4 * 3,000

Profitability = $ 312,000

Product C:

• Selling price per unit = $ 46
• Variable cost per unit = $ 25
• Units produced per machine hour = 2
• Machine capacity = 3,000 hours

Profitability = (46 - 25) * 2 * 3,000

Profitability = $ 126,000

Product D:

• Selling price per unit = $ 56
• Variable cost per unit = $ 37
• Units produced per machine hour = 3
• Machine capacity = 3,000 hours

Profitability = (56 - 37) * 3 * 3,000

Profitability = $ 171,000