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E6-13 Billings Company

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Billings Company manufactures and sells two products. Relevant per unit data
concerning each product follow.

  Basic  Deluxe 
Selling price  $40 $52
Variable costs  $20 $22
Machine hours  0.5 0.8

(a) Compute the contribution margin per machine hour for each product.
(b) If 1,000 additional machine hours are available, which product should Billings manufacture?
(c) Prepare an analysis showing the total contribution margin if the additional hours are:
(1) Divided equally between the products.
(2) Allocated entirely to the product identified in part (b).

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