Question

Proper solution please, thank you. Evaluate the option of ceasing the manufacturing and marketing of the single product and instead replace it with either product X or product Y. The relevant costing information in respect of product X and product Y are as follows:                                                         Product X               Product Y Selling price                                        42                          33 Direct Materials                                  15                          15 Labour hours (0.50 per hour)     18 hours                 9 hours

Variable overheads – 50% of direct wages.   Question: During times of labour shortage, advise Juara Sdn Bhd which of the two products should be manufactured and marketed.

Answer 1

Since the labor hours are limited, the product with higher contribution margin per labor hour should be manufactured
	Product X	Product Y
Selling price	42	33
Direct Materials	15	15
Direct Labor	9	4.5
Variable Overheads	4.5	2.25
Contribution Margin per Unit	1.5	8.25
Labor hours per unit	18	9
Contribution Margin per Hour	0.083333333	0.916666667
Hence, Product Y should be manufactured and marketed