Now let's apply these principles in our GnG Landscape setting. We'll have two separate examples in our GnG Landscape setting. The first will be somewhat redundant with what we discussed so far and that's just to ensure that we have our principles and the issues down. The second will evolve further and take a deeper dive into the analysis that we've done thus far. So the first the clay pots example, the owners of GnG Landscapes recently acquired an existing business. A manufacturer of large decorative clay pots. These are the types of pots that you see on decks and patios where there are large plants or small trees planted. The existing capacity that was purchased can produce three different versions of the pots. Per-unit financial information for the three products is as follows. We have the selling price for each of the different versions; basic, deluxe, and elite. And you can see the selling prices range from 58 to 65, to $80, for each of those different products. And we have our variable costs associated with each of the products. We have direct materials information, direct labor information, and variable overhead. We're also told that the direct labor is paid at a rate of $10 per hour. And keep in mind that no matter what employees are working on which product, they're always being paid the same rate. So it doesn't matter if they're working on the basic or the elite version, they're always getting $10 per hour. The direct materials and the variable overhead costs are what they are. Now, if we were to take our financial information and address the question of which product is most profitable, if demand is the most constrained resource we would go through with our straightforward calculation of contribution margin per unit. We would subtract all of the variable cost from the sine price to calculate the contribution margin per unit for each of the different types of pots. For the basic product, we would have $58 minus the 19 for direct materials 10 for direct labor, and eight for variable overhead to yield a $21 contributions margin for unit. We'll have the same calculations for the deluxe and the elite and we'll be able to see that the elite product is actually the most profitable with a $23 per unit contributions margin. So not let's address the different question. What if labor is the most constrained resource? If that's the case which product is most profitable? Well in that scenario we need to convert our contribution margin per unit number, so a contribution margin per unit of our more scarce resource. In that case that's the labor. Now, we were not told how many labor hours per unit were required for each of the different types of pots. But we do know how much labor costs us for those different types. And we know how much employees get paid. So, looking at the basic version of the pot, we know that direct labor costs per pot are $10. From the information provided before, we know that our employees are paid $10 per hour. So, it sounds like each basic pot requires a full hour of direct labor time. And we know that the labor hours per unit of basic pots is one. Converting the contribution margin of $21 and dividing by the labor hours per unit, yields a contribution margin per labor hour of $21. This means that if we took our scarce resource of labor hours and one additional of those hours was allocated towards completing basic pots, that would yield a return of $21 in contribution margin. On the deluxe and elite side, we can calculate the labor hours per unit for those products as well. For the deluxe product, direct labor cost for each of those units is $15. That sounds like an entire hours worth of direct labor plus another half hour. So it takes 1.5 hours of labor time to create a deluxe product. And on the elite side, we have $20 worth of direct labor allocated for each of those products. That sounds like 2 full hours of labor time. And so the labor hours per unit for the elite products is 2. Taking the contribution margin per unit and dividing by the associated labor hours per unit calculates the contribution margin per labor hour for the deluxe and for the elite products. And so $18 in contribution for deluxe divided by 1.5 hours means that for each hour of labor that we allocated towards completing a deluxe product, we would earn $12 in contribution margin. And for each hour of labor we allocate towards completing an elite product, we would earn $11.50 in contribution margin. So based on this scenario, where we know labor is our most constrained resource our measures tell us that our Basic product is the most profitable. For every hour that we allocate towards completing basic product, we earn $21 which is more than what we earn if were to complete Deluxe or Elite product. Now, let's have a check-point to make sure that we're all on the same page.