What is the differential cost of producing Product D?

A) $6.50 per pound
B) $8.55 per pound
C) $17.00 per pound
D) $5.25 per pound

Question

What is the differential cost of producing Product D?A)  $6.50 per poundB)  $8.55 per poundC)  $17.00 per poundD)  $5.25 per pound

Naeem Ullah · Accepted Answer

Final Answer : B, Explanation :  The differential cost of producing Product D can be calculated as follows:Variable Cost of Product D = Direct Materials + Direct Labor + Variable Overhead= $3.80 + $3.75 + $0.50= $8.05 per poundVariable Cost of Product C = Direct Materials + Direct Labor + Variable Overhead= $3.80 + $3.75 + $2.00= $9.55 per poundTherefore, the differential cost of producing Product D instead of Product C is:$9.55 - $8.05 = $1.50 per poundAs per the given information, the company has limited resources, and it should choose the product with the highest contribution margin per pound of limited resource.Product Contribution Margin per Pound Limited ResourceA $2.00 1 poundB $3.00 1 poundC $1.50 1 poundD $4.00 1 poundAs we can see from the table, Product D has the highest contribution margin per pound of limited resource ($4.00), which means it generates the most profit for the company. Therefore, the best choice is to produce Product D.

What is the differential cost of producing Product D?

A) $6.50 per pound
B) $8.55 per pound
C) $17.00 per pound
D) $5.25 per pound

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