The following analysis of selected data is for each of the two services Gates Corporation provides. Service A Service B Per-service data at 10,000 services Sales price $50 $46 Service costs: Variable 15 21 Fixed 6 4 Selling and administrative expenses: Variable 5 3 Fixed 3 1 In the Gates operation, labor capacity is the company's constraining resource. Each unit of A requires 3 hours of labor, and each unit of B requires 2 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Gates might have. Service A B Revenue Answer Answer Less: Variable cost Answer Answer Contribution margin Answer Answer Labor hours per unit Answer Answer Contribution margin per labor hour Answer Answer Any unused capacity should be devoted to Service B, which has $1 less contribution margin per labor hour than does Service A. Any unused capacity should be devoted to Service A, which has $1 more contribution margin per labor hour than does Service A. Any unused capacity should be devoted to Service B, which has $1 more contribution margin per labor hour than does Service A.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

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The following analysis of selected data is for each of the two services Gates Corporation provides.

	Service A	Service B
Per-service data at 10,000 services
Sales price	$50	$46
Service costs:
Variable	15	21
Fixed	6	4
Selling and administrative expenses:
Variable	5	3
Fixed	3	1

In the Gates operation, labor capacity is the company's constraining resource. Each unit of A requires 3 hours of labor, and each unit of B requires 2 hours of labor. Assuming that all services can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Gates might have.

	Service
	A	B
Revenue	Answer	Answer
Less: Variable cost	Answer	Answer
Contribution margin	Answer	Answer
Labor hours per unit	Answer	Answer
Contribution margin per labor hour	Answer	Answer

Any unused capacity should be devoted to Service B, which has $1 less contribution margin per labor hour than does Service A.

Any unused capacity should be devoted to Service A, which has $1 more contribution margin per labor hour than does Service A.

Any unused capacity should be devoted to Service B, which has $1 more contribution margin per labor hour than does Service A.

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