Duo company manufactures two products, uno and dos. contribution margin data follow.
uno dos
unit sales $ 13.00 $ 31.00
less variable cost:
direct material $ 7.00 $ 5.00
direct labor 1.00 6.00
variable overhead 1.25 7.50
variable selling and administrative cost 0.75 0.50
total variable cost $ 10.00 $ 19.00
unit contribution margin $ 3.00 $ 12.00
duo company’s production process uses highly skilled labor, which is in short supply. the same employees work on both products and earn the same wage rate.
required:
1. calculate the contribution margin per scarce resource for each of the products assuming an arbitrary time period for which direct laborers earn $1.00 per unit.
2. which of duo company’s products is most profitable?