Bell Company produces and sells three products (A, B, C). The following data rel

Question

Bell Company produces and sells three products (A, B, C). The following data relate to the three products. Management considers labor to be a fixed cost. A B C Demand in units 120 110 100 Selling price per unit 100 120 105 Raw material cost/unit 50 60 60 labor time in minutes/unit 12 17 7 Required: 1. Calculate the contribution per labor minute for each product. 2. Determine the best product mix. Assume there are five employees, and given time for breaks, training, and regular meetings, there are a total of 2,200 minutes available per day.

Explanation / Answer

(1)

                                    A                 B                    C

Selling price                 100             120                 105

Material cost                 (50)            (60)                (60)

Contribution                  50                60                  45

Contribution per LM      50/12            60/17             45/7

                                   =4.17              =3.53             =6.43

(2)

We will maximise the production of C since it has higher contribution per labor minute.

Once complete 100 units of product C, we still have labor minute: 2200 - 100 x 7 = 1500 minutes

Next, we will do 120 units of product A.

Once complete 120 units of product A, we still have labor minute: 1500 - 120 x 12 = 60 minutes

The next 60 minute will be used for product B, which we can produce 60/17 = 3 Product B

Optimum product mix: 100 C, 120 A, 3B

Hope this helps!

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