Duo Company manufactures two products, Uno and Dos. Contribution margin data follow.
Uno Dos
Unit sales $ 13.00 $ 31.00
Less variable cost:
Direct material $ 7.00 $ 5.00
Direct labor 1.00 6.00
Variable overhead 1.25 7.50
Variable selling and administrative cost 0.75 0.50
Total variable cost $ 10.00 $ 19.00
Unit contribution margin $ 3.00 $ 12.00
Duo company's production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn the same wage rate.
Required:
1. Calculate the contribution margin per scarce resource for each of the products assuming an arbitrary time period for which direct laborers earn $1.00 per unit.
2. Which of Duo Company's products is most profitable?
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