Profitability Analysis, Scarce Resources Santana Company has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and costs for three models of one of its product lines are as follows:
Selling price No Frills
$30 Standard Options
$35 Super
$50
Direct materials
9
11
11
Direct labor ($10/hour)
5
10
15
Variable overhead
3
6
9
Fixed overhead
3
6
6
Variable overhead is charged to products on the basis of direct labor dollars; fixed overhead is charged to products on the basis of machine-hours.
Required
If Santana Company has excess machine capacity and can add more labor as needed (neither machine capacity nor labor is a constraint), the excess production capacity should be devoted to producing which product or products?
If Santana Company has excess machine capacity but a limited amount of labor time, the production capacity should be devoted to producing which product or products?