MA80 Problem: CM Analysis and Scarce Resources - Ronson Electric

MA80 Problem: CM Analysis and Scarce Resources - Ronson Electric

Ronson Electric produces three products, X, Y, and Z. Cost and revenue characteristics of the three products are as follows (per unit):Product XProduct Y Product Z Selling price $40$40 $36Less: variable expensesDirect materials 155 10Labour and overhead 723 17Contribution margin $18$12 $9Contribution margin ratio 45%30% 25% Demand for the company’s products is very strong, with far more orders on hand each month than thecompany has raw material available to produce. The same kind of raw material is used in each product.The raw material costs $2.50 per kilogram, with a maximum of 5,000 kilograms available each month.Which orders would you advise the company to accept first, those for product X, Y, or Z? Which orderssecond? Third? Explain, and show your computations.