24PGA - Horngren'S Financial And Managerial Accounting

Question

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.

Step-by-Step Solution

Answer

The company should emphasize on Deluxe Toothbrush. 

Step 1: Meaning of Production

Production refers to a process in which raw materials are processed with the help of machines and labor, and are converted into finished goods. The costs incurred in the production process are termed as direct costs, including fixed and variable expenses.

Step 2: Identification of constraint

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

Step 3: 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.