Broze Company makes four products in a single facility. These products have the

Question

Broze Company makes four products in a single facility. These products have the following unit product costs: Products A B C D Direct materials $15.20 $11.10 $11.90 $11.50 Direct labor 20.30 28.30 34.50 41.30 Variable manufacturing overhead 5.20 3.60 3.50 4.10 Fixed manufacturing overhead 27.40 35.70 27.50 38.10 Unit product cost $68.10 $78.70 $77.40 $95.00 Additional data concerning these products are listed below. Products A B C D Grinding minutes per unit 4.70 6.20 5.20 4.30 Selling price per unit $77.00 $94.40 $88.30 $105.10 Variable selling cost per unit $ 3.10 $ 2.10 $ 4.20 $ 2.50 Monthly demand in units 4,900 4,900 3,900 2,900 The grinding machines are potentially the constraint in the production facility. A total of 85,800 minutes are available per month on these machines. Direct labor is a variable cost in this company. Up to how much should the company be willing to pay for one additional minute of grinding machine time if the company has made the best use of the existing grinding machine capacit

Explanation / Answer

First of all we will calculate contribution margin per minute since timing is limited factor and the rank them on the basis of higher contribution margin per minute. The, we distribute the limited time to products.

A B C D Total Selling price per unit 77.00 94.40 88.30 105.10 Less: Variable cost per unit- Direct Materials 15.20 11.10 11.90 11.50 Direct Labour 20.30 28.30 34.50 41.30 Variable manufacturing overhead 5.20 3.60 3.50 4.10 Variable selling cost per unit 3.10 2.10 4.20 2.50 Contribution margin per unit 33.20 49.30 34.20 45.70 Grinding minutes per unit 4.70 6.20 5.20 4.30 Contribution margin per minute 7.06 7.95 6.58 10.63 Ranking III II IV I Monthly demand 4,900 4,900 3,900 2,900 Time should be given (in minutes) 23,030 30,380 19,920 12,470 85,800

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