Product-Profitability Analysis; Scarce Resources Creighton Corporation produces a varietyof consumer electronic products. Unit selling prices and costs for three models of one of its productlines are as follows:[LO 11-7]No Frills Standard Options SuperSelling price $40 $70 $86Direct materials 10 14 16Direct labor (@ $20/hour) 10 20 30Variable overhead 3 6 9Fixed overhead 3 6 6Variable overhead is charged to products on the basis of direct labor dollars; fixed overhead isallocated to products on the basis of machine hours.Required3. If the company has excess machine capacity but a limited amount of labor time, how should the optimum short-term product mix be determined? That is, which product is most desirable (profitable)?Which of the three is least desirable (profitable)?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Product-Profitability Analysis; Scarce Resources Creighton Corporation produces a variety
of consumer electronic products. Unit selling prices and costs for three models of one of its product
lines are as follows:
[LO 11-7]
No Frills Standard Options Super
Selling price $40 $70 $86
Direct materials 10 14 16
Direct labor (@ $20/hour) 10 20 30
Variable
Fixed overhead 3 6 6
Variable overhead is charged to products on the basis of direct labor dollars; fixed overhead is
allocated to products on the basis of machine hours.
Required
3. If the company has excess machine capacity but a limited amount of labor time, how should the optimum short-term product mix be determined? That is, which product is most desirable (profitable)?
Which of the three is least desirable (profitable)?
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