Brinn, located in Port St. Lucie, Florida, produces two lines of electric toothbrushes: deluxe and standard. Because Brinn can sell all the toothbrushes it can produce, the owners are expanding the plant. They are deciding which product line to emphasize. To make this decision, they assemble the following data:

Per Unit

Deluxe Toothbrush Standard Toothbrush

Sales price \(86 \)56

Variable costs 20 18

Contribution margin \(66 \)38

Contribution margin ratio 76.7% 67.9%

After expansion, the factory will have a production capacity of 4,100 machine hours per month. The plant can manufacture either 50 standard electric toothbrushes or 35 deluxe electric toothbrushes per machine hour.

Requirements

1. Identify the constraining factor for Brinn.

2. Prepare an analysis to show which product line to emphasize.

Short Answer

Expert verified

The company should emphasize onDeluxe Toothbrush.

Step by step solution

01

Meaning of Production

Production refers to a process in whichraw materials are processed with the help of machines and labor, and are converted intofinished goods. The costs incurred in the production process are termed as direct costs, includingfixed and variable expenses.

02

Identification of constraint

According to the information given, the constraining factor is the production capacity of 4,100machine hours per month.

03

Preparation of analysis

Particulars

Deluxe Toothbrush ($)

Standard Toothbrush ($)

Contribution margin per unit

66

38

Production of toothbrush per hour

35

50

Contribution margin per machine hour

$2,310

$1,900

Comment:

The contribution margin of Deluxe Toothbrush is higher than the standard toothbrush, therefore, the company should produce more Deluxe Toothbrush for profit maximization.

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What is cost-plus pricing? Who uses it?

Grimm Company makes decorative wedding cakes. The company is considering buying the cakes rather than baking them, which will allow it to concentrate on decorating. The company averages 100 wedding cakes per year and incurs the following costs from baking wedding cakes:

Direct materials \(500

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Variable manufacturing overhead 200

Fixed manufacturing overhead 1,200

Total manufacturing cost \)2,900

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Cost per cake \(29

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Edna Fashions operates three departments: Men’s, Women’s, and Accessories. Departmental operating income data for the third quarter of 2018 are as follows:

EDNA FASHIONS

Income Statement

For the Quarter Ended September 30, 2018

Department

Men’s Women’s Accessories Total

Net Sales Revenue \(101,000 \)59,000 \(102,000 \)262,000

Variable Costs 65,000 35,000 91,000 191,000

Contribution Margin 36,000 24,000 11,000 71,000

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• Salary of the department’s manager

• Cost of advertising directly related to that department

If Edna Fashions drops a department, it will not incur these fixed costs. Under these circumstances, should Edna Fashions drop any of the departments? Give your reasoning.

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