Your Company makes three products in a single facility. These products have the
ID: 2449343 • Letter: Y
Question
Your Company makes three products in a single facility. These products have the following unit product costs: Additional data concerning these products are listed below: The mixing machines are potentially the constraint in the production facility. A total of 18,000 minutes are available per month on these machines. Direct labor is a variable cost in this company. How many minutes of mixing machine time would be required to satisfy demand for all three products? How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.) Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent.)Explanation / Answer
a. Mixing Machine Time required for all Products Product Time reqd Monthly Units Total per unit demand time reqd (in mins) (in mins) A 3 1,500 4,500 B 2 3,000 6,000 C 3 4,000 10,000 20,500 b. Maximisation of net operating income occurs when the entire 18,000 minutes are utilised for production. Based on the table given above, the quantity of units to be produced will be as under : A 1,317.00 B 2,634.00 C 3,512.00 c. If the Company makes best use of the existing machine capacity based on the current rates (as shown below), the company can pay as under for one additional hour of mixing machine time : Product Hours/Unit Rate/hour Rate/unit Demand Total No. of hours A 0.05 0.25 0.01 1500 18.75 75 B 0.03 0.28 0.01 3000 28.33 100 C 0.04 0.27 0.01 4000 44.44 167 91.53 342 Rate per hour for an extra hour of additional time = 0.27 $
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