Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these... | eBooks | Education

Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these...

Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these... PLDZ-3038
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Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Atlas is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Atlas wants to improve steel operation profitability. The variable conversion cost is $10 per process hour. The fixed cost is $479,000. In addition, the cost analyst was able to determine the following information about the three products:

    High Grade

    Good Grade

    Regular Grade

Budgeted units produced

6,000

6,000

6,000

Total process hours per unit

17

15

12

Furnace hours per unit

3

5

4

Unit selling price

$303

$263

$271

Direct materials cost per unit

$112

$108

$99

The furnace operation is part of the total process for each of these three products. Thus, for example, 3 of the 17 hours required to process High Grade steel are associated with the furnace.

  1. Determine the unit contribution margin for each product.

Contribution Margin Per Unit

High Grade

$

Good Grade

$

Regular Grade

$

  1. Provide an analysis to determine the relative product profitability, assuming that the furnace is a bottleneck.

Contribution Margin Per Furnace Hour

High Grade

$

Good Grade

$

Regular Grade

$

 

Atlas Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Atlas is able to sell as much as it can produce of all three. The furnace operation is a bottleneck
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