The constraint at Vrana Inc. Is an expensive milling machine. The three products
ID: 2380613 • Letter: T
Question
The constraint at Vrana Inc. Is an expensive milling machine. The three products listed below use this constrained resource.
.......................................................................PK.............L.A....................NW
Selling price per unit........................................$404.58........$478.74.............$358.44
Variable cost per unit........................................$308.88........$371.30............$285.36
Time on the constraint (minutes).............................6.60..............7.90..................5.80
Required:
a. Rank the products in order of their current profitablilty from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized.
b. Assume that sufficient constraint time is available to satisfy demand for all byt the least profitable produt. Up to how much should the company be willing to pay to acquire more of the constrained resource?
Explanation / Answer
a. Contribution margin of PK per minute of million machine used= (404.58-308.88)/6.6 =$14.5
Contribution margin of LA per minute of million machine used= (478.74.-371.30)/7.9 =$13.6
Contribution margin of NW per minute of million machine used= (358.44-285.36)/5.8 =12.6
Rank
PK> L.A > NW
b. maximum the company be willing to pay to acquire more of the constrained resource = Contribution margin of NW per minute of million machine used = $12.6 per minute of machine used
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