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Medical Questions
Your Question
A company manufactures and sells 2 products A and B. presently it sells 600 units of A and 400 units of B at a price of $24 and $19, respectively. the cost structure of both A and B is:
ProductA Product B
direct materials 2 4
direct labor 4 4
factory overheads
(40% fixed) 5 3
other overhead
(40% variable) 8 5
total cost 19 16
Total factory overheads are absorbed on the basis of machine hours, which is the limiting factor. the machine hour rate is $2 per hour.
the company received an offer to sell product A at a price of $17.50 and product B at a price of $15.50. the company has a spare capacity of 25% and can supply either A or B.
Now the question is which offer to accept, whether to sell A or B?
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