Brown Corporation makes four products in a single facility. These products have

Question

Brown Corporation makes four products in a single facility. These products have the following unit product costs: Products A B C D Direct materials $16.20 $20.10 $13.10 $15.80 Direct labor 18.20 21.60 16.00 10.00 Variable manufacturing overhead 5.00 6.20 8.70 5.70 Fixed manufacturing overhead 28.10 15.00 15.10 17.10 Unit product cost $67.50 $62.90 $52.90 $48.60 Additional data concerning these products are listed below. Products A B C D Grinding minutes per unit 2.30 1.40 1.00 0.60 Selling price per unit $81.70 $74.10 $70.90 $65.60 Variable selling cost per unit $3.20 $3.70 $3.40 $4.10 Monthly demand in units 3,600 2,600 2,600 4,600.00 The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labor is a variable cost in this company. Which product makes the MOST profitable use of the grinding machines? Product C Product D Product A Product B

Explanation / Answer

A B C D Direct material 16.2 20.1 13.1 15.8 Direct labour 18.2 21.6 16 10 Variable manufaturing overhead 5 6.2 8.7 5.7 Variable selling cost per unit 3.2 3.7 3.4 4.1 Variable cost per unit 42.6 51.6 41.2 35.6 A B C D Selling price per unit 81.7 74.1 70.9 65.6 variable cost per unit 42.6 51.6 41.2 35.6 contribution margin 39.1 22.5 29.7 30 Amount of the constrained resources required to produce 2.3 1.4 1 0.6 one unit 17 16.07143 29.7 50 Ranking 3 4 2 1 Product D is the answer (product makes the MOST profitable use of the grinding machines)

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