Question

Geo unting eTextbook: Survey of Accounting Q Quick Tour Print Search TY Annotations Accessibility Bookmark ulargon per un duct Pricing Chavez Chemical Company produces three products: ethylene, butane, and ester. Each of these products has high demand in the market, and Chavez Chemical is able to sell as much as it can produce of all three. The reaction operation is a bottleneck in the process and is running at 100% dt capacity, Chavez Chemical wants to improve chemical operation profitability. The variable conversion cost is $20 per process hour. The fixed cost is $550,000. In addition, the cost analyst was able to determine the following information about the three products: Ethylene Butane Ester 15.000 15.000 son Questions 15.000 6 8 4 on Questions Budgeted units produced Total process hours per unit Reactor hours per unit Unit selling price Direct materials cost per unit 1.0 OB 0.5 $400 $ 250 $ 350 $ 130 S 180 $ 90 Analysis The reaction operation is part of the total process for each of these three products. Thus, for example, 1.0 of the 6 hours required to process ethylene is associated with the reactor. Budgeting and Instructions Secentralized 1. Determine the unit contribution margin for each of the three products ANSWER ge Go 2. Provide an analysis to determine the relative product profitabilities, assuming that the reactor is a bottleneck

Answer 1

790 Answer: O Determination of the unit contribution margin Particulars Ethylene Rufare Ester unit sp 400 350 250 Less:DM cost 180 130 90 120 So 100 Loa 80 Less: Variable con cost contribution marginal * variable con cost frotadhows *ao ). #Explanation for DM cost: particulars Ethylene Rutane ester Budgeted units 15000 15000 Total process bours po Reactors hours pe other then Reactor hour fu وموكل 6 6 4. 0.8 0.5 5 S 5.2 3.5 unit sa 400 350 Dm Cost 180 120 90

Q . 100 loo 0.8 0.5 ܩܩܐ 160 ④ contribution mangin po for bottleneck particulars Ethylene Rutare. Ester contribution mangin before bottleneck Reactors bow pu Contibution mangin pu for reactor bouy Ranking 3) Revised price for Ethylene contribution m margin do Estor (Revised price-veriable cost for Ethylene ) Reactor time for Ethylene 160 = Revised price -300 00)/1 M T I I PU for Revised price = 460 Revised price for Butane! Revised price-variable cast for berbre) Contribution marginds Esture Reactor time pu for Butane 160 =(Revised price -250) o: Revised price = $3.78