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Chapter 25: Q25-20RQ (page 1407)

What is the decision rule concerning products to emphasize when facing a constraint?

Short Answer

Expert verified

Answer

The decision ruleis to select the high contribution margin per unit product when facing a constraint.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Constraint Management

The term constraint management refers to a technique or approach used by the management to draft decisions associated with theproduction and sales in case of difficulties, i.e.,constraints.

02

Decision rule associated with the products to emphasize in case of a constraint

The decision rule refers to the selection of the best alternative from the available choices when facing constraints. The decisions in such situations are generally associated with what to produce and which quantity should be produced.

In such a decision-making process, a company must opt for the production of a product that contains a high contribution margin per unit.

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Most popular questions from this chapter

What questions should managers answer when considering dropping a product or segment?

Brik, located in San Antonio, Texas, produces two lines of electric toothbrushes: deluxe and standard. Because Brik 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 \(88 \)54

Variable expense 22 18

Contribution margin \(66 \)36

Contribution margin ratio 75.0% 66.7%

After expansion, the factory will have a production capacity of 4,900 machine hours per month. The plant can manufacture 65 standard electric toothbrushes or 27 deluxe electric toothbrushes per machine hour.

Requirements

1. Identify the constraining factor for Brik.

2. Prepare an analysis to show which product line the company should emphasize.

What does the target full product cost include?

When completing a differential analysis, when are the differences shown as positive amounts? As negative amounts?

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

Direct labor 1,000

Variable manufacturing overhead 200

Fixed manufacturing overhead 1,200

Total manufacturing cost \)2,900

Number of cakes ÷ 100

Cost per cake \(29

Fixed costs are primarily the depreciation on kitchen equipment such as ovens and mixers. Grimm expects to retain the equipment. Grimm can buy the cakes for \)25.

  1. Should Grimm make the cakes or buy them? Why?
  2. If Grimm decides to buy the cakes, what are some qualitative factors that Grimm should also consider?
See all solutions

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