Your Company makes three products in a single facility. These products have the
ID: 2455601 • Letter: Y
Question
Your Company makes three products in a single facility. These products have the following unit product costs:
Product A Product B Product C
Direct materials.....................................$24.90 $25.70 $26.60
Direct labor..............................................13.30 17.10 15.70
Variable manufacturing overhead..... 2.50 2.80 3.10
Fixed manufacturing overhead........... 19.80 27.70 21.00
Unit product cost ....................................$60.50 $73.30 $66.40
Additional data concerning these products are listed below:
Product A Product B Product C
Mixing minutes per unit............. 2.50 1.70 1.60
Selling price per unit $71.50 $87.90 $83.00
Variable selling cost per unit $2.30 $1.90 $3.80
Monthly demand in units 1,000 3,000 3,000
The mixing machines are potentially the constraint in the production facility. A total of 10,800 minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all four products?
b. How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit.)
Explanation / Answer
Answer: a).How many minutes of mixing machine time would be required to satisfy demand for all four products? Demand on the mixing Machine: Particulars Products A B C Mixing minutes per Unit 2.5 1.7 1.6 Monthly demand in units 1,000 3,000 3,000 Total minutes required 2,500 5,100 4,800 Total time required for all products: 12,400 (2,500 + 5,100 + 4,800) b).How much of each product should be produced to maximize net operating income? Optimal production plan: Particulars Products A B C Selling price per unit $71.50 $87.90 $83.00 Direct materials $24.90 $25.70 $26.60 Direct labor $13.30 $17.10 $15.70 Variable manufacturing overhead $2.50 $2.80 $3.10 Varable selling cost per unit $2.30 $1.90 $3.80 Total variable cost per unit $43.00 $47.50 $49.20 Contribution margin per unit $28.50 $40.40 $33.80 Mixing minutes per unit 2.5 1.7 1.6 Contribution margin minute $11.40 $23.76 $21.13 Rank in terms of profitablity 3 1 2 Optimal production 360 3,000 3,000 Workings Total time required for all products 12,400 Total of minutes available 10,800 Difference 1,600 Mixing minutes per product A 2.5 So, optimal production of product A (1,000 - (1,600 / 2.5) = 360
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.