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If labour hours are restricted in supply, which order should the company adopt when planning its production?
Business/Management
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Answer
Step-by-step solution
3 stepsTo determine the optimal production order when labour hours are restricted, we need to calculate the contribution margin per unit of the limiting factor (labour hour) for each product. The product with the highest contribution margin per labour hour should be prioritized first.
Calculate the Contribution Margin per unit for each product.
The contribution margin is the sales value minus all variable costs (direct material cost and labour cost).
- Product X:
- Product Y:
- Product Z:
Calculate the Contribution Margin per Labour Hour for each product.
This is found by dividing the contribution margin per unit by the labour hours required per unit.
- Product X:
- Product Y:
- Product Z:
Rank the products based on their Contribution Margin per Labour Hour.
- Product Z:
\333.33$ per hour - Product Y:
\250$ per hour - Product X:
\150$ per hour
Therefore, the company should adopt the production order Z, Y, X. This corresponds to option D.
The final answer is .
- Product Z:
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