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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Brief Exercises 8-32 and 8-33:

Relax Spas provides two types of massage services, the Full Body and the Trouble Spots, with unit contribution margins of $198 and $90, respectively. Regardless of type, each massage requires the use of a certified masseuse. Relax Spas has four masseuses on staff who each work 1,500 hours per year. Each Full Body massage uses 90 minutes of masseuse time, and each Trouble Spot massage uses 30 minutes of masseuse time. [Note: For all answers that are less than 1.0, round the answer to two decimal places. For all unit answers (e.g., the answer is greater than 1.0), round the answer to the nearest whole number.]

Determining the Optimal Product Mix with One Constrained Resource and a Sales Constraint

Refer to the information for Relax Spas above. Assume that a maximum of 8,000 massages of each type can be sold.

Required:

  1. 1. What is the contribution margin per hour of masseuse time for each type of massage?
  2. 2. What is the optimal mix of massages?
  3. 3. What is the total contribution margin earned for the optimal mix?

1.

To determine

Calculate the contribution margin per hour of masseuse time for each type of massage.

Explanation

Contribution Margin:

Contribution margin can be defined as the amount of difference the sales revenue and the variable expense. It means the amount of sales left over after covering the variable expenses.

The following table represents the contribution margin per hour of masseuse time for each type of massage:

 Full body ($)Trouble Spots ($)
Contribution margin per unit19890
Required masseuse time per massage11.500.5
Contribution margin per hour of masseuse time2132180

Table (1)

Therefore, the contribution margin per hour of masseuse time for full body and trouble spot are $132 and $180 respectively.

Working Notes:

1. Calculation of required masseuse time per massage for the full body:

Required masseuse time=Time required in full body massageNumber of minutes in an hour=90 minutes60minutes=1.5 hours

Hence, the required masseuse time per massage for the full body is 1.50 hours.

Calculation of required masseuse time per massage for trouble spots:

Required masseuse time=Time required in trouble spot massageNumber of minutes in an hour=30 minutes60 minutes=0

2.

To determine

Calculate the optimal mix of the massages.

3.

To determine

Calculate the contribution margin earned for the optimal mix.

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