Ronson Electric produces three products, X, Y and Z. Cost and revenue characteristics of the three products are: (per unit)
Product X
Product Y
Product Z
Selling price
$40
$40
$36
Less: variable expenses
Direct materials
15
5
10
Labour and overhead
7
23
17
Contribution margin
$18
$12
$9
Contribution margin ratio
45%
30%
25%
Demand for the companys products is strong, with far more orders on hand each month than the company has raw material available to produce. The same kind of raw material is used in each product. The raw material costs $2.50 per kilogram, with a maximum of 5,000 kilograms available each month. Which orders would you advise the company to accept first, those for product X, Y or Z? Which orders second? Third? Explain, and show your computations.
