Appendix B – Profitability Analysis
Gorey Products Inc. makes two products—K36L and W81H. Product K36L’s selling price is
$345.00 and its unit variable cost is $310.50. Product W81H’s selling price is $256.00 and its
unit variable cost is $230.40. The monthly demand is 430 units for product K36L and 890
units for W81H. The constrained resource is a particular machine that is available for 10,000
minutes each month. Each unit of product K36L requires 15 minutes on this machine and
each unit of product W81H requires 8 minutes on this machine.
45. How many units of product K36L should be produced each month?
Appendix B – Profitability Analysis
46. What is the maximum contribution margin the company can earn per month?
Appendix B – Profitability Analysis
47. Up to how much should the company be willing to pay to obtain enough of the
constrained resource to satisfy demand for the two existing products?
Appendix B – Profitability Analysis
48. The company is considering launching a new product that would have a variable cost of
$158.00 per unit and no avoidable fixed costs. It would require 9 minutes of the constrained
resource. The absolute minimum acceptable selling price for the new product should be:
Appendix B – Profitability Analysis
Galapon Corporation’s two products have the following characteristics:
The constrained resource is a particular machine that is available for 10,100 minutes each
month. Each unit of product P66G requires 4 minutes on this machine and each unit of
product H98V requires 18 minutes on this machine.
49. How many units of product H98V should be produced each month?
Appendix B – Profitability Analysis
50. Up to how much should the company be willing to pay to obtain enough of the
constrained resource to satisfy demand for the two existing products?
Appendix B – Profitability Analysis
Wakeland Corporation’s two products have the following characteristics:
The constrained resource is a particular machine that is available for 10,300 minutes each
month. Each unit of product F61C requires 5 minutes on this machine and each unit of
product E01W requires 7 minutes on this machine.
51. How many units of product E01W should be produced each month?
Appendix B – Profitability Analysis
52. What is the maximum contribution margin the company can earn per month?
Appendix B – Profitability Analysis
App B-49
The management of Coppler Corporation has provided the following data concerning its two
products:
The constrained resource is a particular machine that is available for 9,700 minutes each
month.
Appendix B – Profitability Analysis
53. How many units of product O85D should be produced each month?
Appendix B – Profitability Analysis
54. What is the maximum contribution margin the company can earn per month?
Appendix B – Profitability Analysis
Martorell Products Inc. makes two products—C39X and H08L. Product C39X’s selling price
is $54.00 and its unit variable cost is $43.20. Product H08L’s selling price is $496.00 and its
unit variable cost is $446.40. The monthly demand is 2,500 units for product C39X and 510
units for H08L. The constrained resource is a particular machine that is available for 10,300
minutes each month. Each unit of product C39X requires 3 minutes on this machine and each
unit of product H08L requires 16 minutes on this machine.
55. How many units of product H08L should be produced each month?
Appendix B – Profitability Analysis
56. What is the maximum contribution margin the company can earn per month?
Appendix B – Profitability Analysis
Lesser Corporation has four products that use the same constrained resource. Data
concerning those products appear below:
The company does not have enough of the constrained resource to satisfy for demand of all
four products.
57. If salespersons are paid commissions that are a set percentage of sales, which product
would they prefer to sell? In other words, if it is a choice between selling one unit of one
product and one unit of another, which product would they prefer to sell?
Appendix B – Profitability Analysis
App B-55
58. From the standpoint of the entire company, if it is a choice between sales of one unit of
one product versus another, which product should the salespersons emphasize?
The same constrained resource is used by four different products at Kurdyla Corporation.
Data concerning those products appear below:
The company does not have enough of the constrained resource to satisfy for demand of all
four products.
Appendix B – Profitability Analysis
App B-56
59. If salespersons are paid commissions that are a set percentage of sales, which product
would they prefer to sell? In other words, if it is a choice between selling one unit of one
product and one unit of another, which product would they prefer to sell?
60. From the standpoint of the entire company, if it is a choice between sales of one unit of
one product versus another, which product should the salespersons emphasize?
The company would prefer that a unit of P100, the product with the highest profitability
index, be sold.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: Application
Learning Objective: AppB-03 Compute and use the profitability index in other business decisions.
Level: Easy
Appendix B – Profitability Analysis
App B-57
Essay Questions
61. Huddleston Corporation is considering the following six long-term projects:
Only $63,800 is available for investment in these projects.
Required:
a. Determine which projects should be accepted.
b. Determine the total net present value of all of the accepted projects if your plan from part
(a) above is adopted.